- Budget 2026 reduced TCS on overseas packages to flat 2%.
Prime Minister Narendra Modi recently urged Indians to avoid foreign travel, but did you know that booking a foreign trip means paying a tax that you might not know about? It quietly takes a cut the moment you book that tour package to your next foreign destination. It is called TCS, or Tax Collected at Source, and understanding it could save you both money and confusion.
What Exactly Is TCS?
TCS is not paid separately on top of your income tax but is deducted in advance. You pay it upfront to the government when you spend on certain things, and this includes foreign travel. It is treated as a credit towards your total tax liability for the year and can be adjusted or refunded when you file your income tax return.
The rule falls under Section 206C(1G) of the Income Tax Act, 1961. It requires the travel company or agent selling you the tour package to collect this tax from you at the time of booking and deposit it with the government.
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When Does TCS Apply and When Does It Not?
TCS applies when an Indian resident buys an overseas tour package. This covers flights, hotels, and bundled holiday packages booked through a travel agent or tour operator.
You can avoid TCS if you book your flights and hotels separately on your own. The law targets tour packages sold by a travel company, not individual bookings made independently. So the way you book your trip determines whether TCS gets collected at all.
How Much Will You Actually Pay?
Before the Union Budget 2026, the TCS structure on overseas tour packages was steep: 5 per cent on amounts up to Rs 10 lakh, and a sharp 20 per cent on anything above that.
Budget 2026 has changed this significantly. From FY 2026–27, there is now a flat 2 per cent TCS on all overseas tour packages, with no threshold limit and no tiered slabs. The 2 per cent applies regardless of how expensive the package is.
To explain simply:
If you book a foreign holiday package from a tour operator or an online platform for Rs 3,00,000, the travel company will collect Rs 6,000 as TCS from you at the time of payment. That Rs 6,000 goes to the government as an advance against your income tax for the year. If you paid Rs 3,00,000 for a package before the Budget, under the old 5 per cent rule, that deduction would have been Rs 15,000, more than double.
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How to Claim Your TCS Back
Claiming your TCS back is straightforward. Here is how it works:
- First, make sure to collect your TCS certificate, issued in Form 27D, from the travel company. This document shows how much the travel company deducted as tax and deposited with the government.
- Second, keep all your invoices, bills, and bank statements related to the booking. These serve as proof of expenditure.
- Third, make sure your PAN details are correctly linked and updated across all these documents, since the refund process is PAN-based.
When you file your income tax return at the end of the financial year, the TCS amount shows up as a credit against your total tax liability. If your tax liability for the year is lower than the TCS already paid, the difference is refunded to you by the government.
The key problem with the old high TCS rates was that large sums got blocked with the government for months until the refund season. Budget 2026’s move to a flat 2 per cent directly addresses this, freeing up more cash in travellers’ hands at the time of booking.
