(INDIA) — Finance Minister Nirmala Sitharaman cut Tax Collected at Source (TCS) on overseas education remittances under India’s Liberalised Remittance Scheme on February 1, 2026, lowering the upfront cash burden for families sending tuition and living expenses abroad.
“I propose to reduce the TCS rate for pursuing education and for medical purposes under the Liberalised Remittance Scheme, popularly known as LRS, from 5% to 2%,” Sitharaman said.
The change applies to education and medical remittances above ₹10 lakh a year, and it comes with a sharper cut for overseas tour packages, which now face a 2% flat rate with no threshold.
For education remittances made directly by families, the new TCS rate is 2%, down from 5%, for amounts exceeding ₹10 lakh annually.
Remittances made through education loans also face a 2% TCS rate above ₹10 lakh, under the budget changes described in the government’s table of new rates and thresholds.
Medical remittances under LRS similarly shift to 2% from 5% above ₹10 lakh a year.
Overseas tour packages move to a 2% flat TCS rate with no threshold, replacing a structure shown in the budget table as 5% up to ₹10 lakh and 20% above that amount.
Under the Liberalised Remittance Scheme, remittances remain capped at USD 250,000 per individual per year for permitted purposes such as education, travel and medical treatment.
TCS is creditable against income tax liability through income tax return filing, but it ties up cash at the time of remittance, which households then seek back as a refund.
A ₹25 lakh education remittance illustrates the difference created by the new rates.
Under the previous 5% TCS rate, sending ₹25,00,000 for a child’s tuition and living expenses meant a TCS of ₹1,25,000 and a total outflow of ₹26,25,000.
At the new 2% rate, the same ₹25,00,000 remittance attracts a TCS of ₹50,000, taking the total outflow to ₹25,50,000.
That reduces immediately blocked funds by ₹75,000, shifting liquidity back to families at a time when they often face multiple large, time-bound payments tied to admissions and visa timelines.
For households remitting ₹40–50 lakh per year, the reduction in upfront blocking becomes ₹1–1.5 lakh, based on the figures in the budget explanation.
Kunal Savani, Partner at Cyril Amarchand Mangaldas, called the change a cash-flow relief for families financing overseas education.
“This is a timely relief that eases the financial burden on students and families. improves liquidity for genuine personal needs,” Savani said.
Pavan Kavad, Managing Director of Prithvi Exchange, welcomed the move while arguing it did not go far enough for borrowers.
“While the rationalisation of TCS is a step in the right direction, completely removing TCS on education loan borrowings would have delivered far deeper relief,” Kavad said.
The rate cut targets a cost that families typically bear upfront even though TCS is not an additional tax in itself once adjusted through filing.
For many households, the upfront cash gap can influence timing and sequencing of payments, particularly when tuition deadlines, accommodation deposits and travel plans land in the same window.
Students applying for F1 and other study visas often need to demonstrate funds for tuition and living expenses, and the lower TCS reduces the amount that must be arranged over and above the remittance amount.
The budget explanation pointed to liquidity needs such as housing deposits, insurance and travel as areas where lower blocked funds could help, particularly for families that otherwise rely on short-term borrowing.
The lower rate also reduces the initial burden on borrowers using education loans for remittances, since the table aligns such remittances at 2% above ₹10 lakh.
A separate benefit for visa and admissions travel comes from the cut on overseas tour packages, with the budget setting a 2% flat rate with no threshold.
In practical terms for internationally mobile Indians, the tour-package change can affect payments linked to admissions visits, visa interview travel and family trips, because the rate no longer escalates based on amount.
The government kept the LRS annual remittance cap at USD 250,000 per individual, a limit that shapes how families structure transfers when meeting larger overseas education expenses.
Education remittance trends have shown sensitivity to cost pressures, with education remittances falling to $120.94 million in November 2025, down 25.92% from October and 54.25% from September, the budget explanation said.
That pullback came amid what the budget narrative described as caution by families facing higher global costs, even as demand for foreign education remained an enduring feature of outbound remittances.
For FY2024-25, total education remittances stood at $2.92 billion, the budget explanation said.
In the same discussion of visa-linked needs, the budget explanation referenced proof-of-funds requirements, including “Germany’s ₹12 lakh blocked account requirement,” as an example of how upfront liquidity can matter for students.
While the TCS cut reduces the cash locked at the time of transfer, families still have to reconcile TCS through tax filing to fully benefit, since refunds and credits depend on income tax return processes.
That means households that do not file or delay filing may not realise the benefit quickly, even though the initial remittance becomes cheaper in terms of outflow at the point of payment.
The budget also left other elements of the LRS framework in place, including TCS on certain other remittance purposes, and the explanation noted that foreign exchange risks persist for families exposed to currency movements.
Beyond education and travel-linked remittances, the budget included measures framed as supportive of global-facing sectors, which can shape cross-border work and mobility for Indians.
The budget narrative pointed to an IT and global services push, including tax clarity for IT exporters and support for cloud and data center industries, linking those measures to prospects for cross-border tech jobs.
It also highlighted manufacturing and infrastructure growth areas such as electronics, semiconductor and logistics corridors, which the budget narrative said could expand multinational company activity in India and create more global mobility opportunities.
At the same time, the budget increased trading tax (STT) on derivatives, a change the budget narrative said could raise trading costs slightly for NRIs investing in Indian markets.
For families and students, the core relief sits in the arithmetic of the TCS cut: the government collects less at the moment of transfer, leaving more liquidity available for immediate education expenses.
Even with the rate reduction, TCS remains part of the process, so the system continues to collect and later reconcile amounts through tax filing rather than removing the mechanism entirely.
That trade-off emerged in the reactions quoted in the budget explanation, with supporters emphasising cash-flow relief and critics focusing on the continued presence of TCS, especially for education loan borrowings.
On a ₹25 lakh transfer, the difference between ₹1,25,000 and ₹50,000 in TCS changes how much additional cash a household must arrange at short notice, without altering the amount delivered for tuition and living costs.
The government’s table also makes the overseas tour package move a sharp simplification, shifting to a uniform 2% with no threshold rather than different rates at different amounts.
Taken together, the changes lower the upfront burden for students, families and globally mobile Indians without removing TCS from the remittance process, leaving tax filing and foreign exchange exposure as ongoing parts of the cost of going abroad.
Budget 2026 Cuts TCS to 2% Easing Education Remittances Under Liberalised Remittance Scheme
India has reduced the Tax Collected at Source (TCS) on overseas education and medical remittances from 5% to 2% for amounts over ₹10 lakh. This adjustment, part of the 2026 budget, aims to ease the upfront financial burden on families sending students abroad. Overseas tour packages also saw a rate simplification to a flat 2%. Though TCS remains refundable through tax filings, the lower initial collection improves household liquidity.
