How Budget 2026 makes foreign travel and overseas education cheaper | Explained

With these changes, Budget 2026 aims to make foreign travel more affordable for Indian households and reduce the financial burden on students and families pursuing education and medical treatment overseas, while continuing to track cross-border transactions.

• TCS on overseas tour packages cut to 2 percent, easing travel costs for Indians
• TCS on education and medical remittances reduced from 5 percent to 2 percent
• Interest from Motor Accident Claims Tribunal now fully exempt from income tax

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Union Finance Minister Nirmala Sitharaman on Sunday announced a series of tax measures in the Union Budget 2026 aimed at improving ease of living, simplifying compliance and providing direct relief to common taxpayers, especially Indian travellers and students going abroad.

Presenting the Budget in Lok Sabha, Nirmala Sitharaman said the government’s focus is on making the income tax system simpler and more citizen-friendly.

As part of the proposals, the Finance Minister announced that interest awarded by the Motor Accident Claims Tribunal (MACT) to a natural person will be fully exempt from income tax.

She said, “Any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax and any TDS from this account will be done away with.”

Big relief for foreign travel and overseas education

In a major move benefiting Indians travelling abroad, Sitharaman proposed a sharp reduction in Tax Collection at Source (TCS) on overseas tour programme packages to 2 per cent, down from the existing rates of 5 per cent and 20 per cent. The reduced rate will apply without any threshold limit, significantly lowering upfront cash outflows for travellers.

The Finance Minister also announced relief for families sending money overseas for education and medical purposes. Under the Liberalised Remittance Scheme (LRS), the TCS rate for education and medical remittances will be cut from 5 per cent to 2 per cent.

Nirmala Sitharaman said, “I propose to reduce TCS rate for pursuing education and for medical purposes under the Liberalized Remittance Scheme, popularly known as LRS.”

This is expected to ease cash-flow pressures on students studying abroad and families coping with rising global education and healthcare costs.

To reduce ambiguity in tax deductions, Sitharaman said manpower supply services will be specifically included under payment contractors for TDS purposes, with tax deducted at 1 per cent or 2 per cent, bringing greater clarity for businesses.

Experts welcome the move

Amit Gupta, Partner at Saraf and Partners, said the Budget delivers long-overdue relief to taxpayers.

“Budget 2026 delivers a much-needed correction in the TCS regime. By slashing TCS on foreign travel and education to just 2%, the government has reduced unnecessary upfront tax burdens on families and students, and restored affordability to international spending,” he said.

Explaining the impact, Gupta noted that earlier, a ₹10 lakh foreign tour required ₹2 lakh as upfront TCS, creating liquidity stress and long wait times for refunds.

“Now, with the proposed flat 2% TCS, the same tour only needs ₹20,000 as TCS. This would dramatically reduce the financial burden and cash flow issues, especially for middle-class families planning foreign vacations,” he added.

Lokesh Shah, Partner at CMS INDUSLAW, said the targeted relief strikes the right balance.

“The Government’s decision to reduce the TCS rate on outward remittances under the LRS for medical treatment and education from 5% to 2% is a timely and well-calibrated relief, easing cash-flow pressures on students and families,” he said.

Zeel Jambuwala, Co-founder & Partner at Aurtus, also welcomed the rationalisation.

“The Union Budget's rationalisation of TCS rates—to 2% from the current applicable rate of 5% and 20% on overseas tours and travel, and from 5% to 2% on LRS remittances for education or medical purposes—is a welcome move. It should boost liquidity for offshore payments and ease the strain of rising education and medical costs on families,” he said.

With these changes, Budget 2026 aims to make foreign travel more affordable for Indian households and reduce the financial burden on students and families pursuing education and medical treatment overseas, while continuing to track cross-border transactions.