TCS, or Tax Collected at Source, is a tax deducted in advance when Indians book overseas tour packages. According to tax experts, this tax is not paid separately on top of income tax but is deducted upfront by travel companies and deposited with the government. The rule falls under Section 206C(1G) of the Income Tax Act, 1961, requiring travel companies to collect this tax at the time of booking and deposit it with the government. TCS is treated as a credit towards total tax liability for the year and can be adjusted or refunded when filing income tax returns.
The Union Budget 2026 has significantly simplified TCS on overseas tour packages. As reported by tax experts, the previous structure was 5% on amounts up to ₹10 lakh and 20% on amounts above ₹10 lakh. From FY 2026-27 onwards, there is now a flat 2% TCS on all overseas tour packages, with no threshold limit and no tiered slabs. This means that regardless of the package price, the same 2% rate applies. For example, a ₹3,00,000 foreign holiday package would result in ₹6,000 TCS collection, compared to ₹15,000 under the old 5% rule. The flat 2% rate directly addresses the previous issue where large sums remained blocked with the government for months until refund season.
TCS specifically applies when Indian residents purchase overseas tour packages through travel agents or tour operators. According to tax experts, the law targets tour packages sold by travel companies, not individual bookings made independently. This means that booking flights and hotels separately on your own avoids TCS collection. The tax covers flights, hotels, and bundled holiday packages booked through travel agents or tour operators, making the booking method crucial for determining whether TCS gets collected. Prime Minister Modi recently urged Indians to avoid foreign travel, but the government continues to collect this advance tax on tour packages.
Claiming TCS refund is a straightforward process requiring proper documentation. As reported by tax experts, the key requirements include collecting the TCS certificate (Form 27D) from the travel company, keeping all booking invoices, bills, and bank statements, and ensuring PAN details are correctly linked across all documents. When filing income tax returns, the TCS amount shows up as a credit against total tax liability. If the tax liability is lower than the TCS paid, the difference is refunded by the government. The flat 2% rate under Budget 2026 addresses the previous issue where large sums remained blocked with the government for months until refund season.
