Clause 73 of the Finance Bill, 2026 proposes a comprehensive rationalisation of Tax Collected at Source (TCS) under section 394 of the Income-tax Act, 2025. The amendment aims to simplify the existing structure, characterised by multiple rates and thresholds, by moving towards greater uniformity and moderation of rates. The proposed changes cover:
- Sale of certain specified goods
- Remittances under the Liberalised Remittance Scheme (LRS)
- Sale of overseas tour programme packages
All changes will apply from 1 April 2026 (tax year 2026-27 onwards).
Background: TCS Framework under Section 394
Section 394(1) mandates collection of tax at source on specified receipts at the time of:
- debit of the amount payable, or
- receipt of the amount, whichever is earlier.
Over time, varying rates (1%, 5%, 20%) and thresholds resulted in:
- compliance complexity, and
- disproportionately high upfront tax in certain transactions (notably overseas travel).
Key Amendments Proposed in Clause 73
1. Rationalised TCS Rates for Specified Goods
Clause 73 standardises the TCS rate at 2% for the following categories.
Table 1: TCS on Sale of Specified Goods
| Nature of Receipt | Existing TCS Rate | Proposed TCS Rate (w.e.f. 1-4-2026) |
| Alcoholic liquor for human consumption | 1% | 2% |
| Tendu leaves | 5% | 2% |
| Scrap | 1% | 2% |
| Minerals (coal, lignite, iron ore) | 1% | 2% |
Implications
- Significant reduction for tendu leaves (5% → 2%)
- Marginal increase for liquor, scrap and minerals, but with uniformity
- Simplified compliance with a single standard rate
2. Reduced TCS on LRS Remittances for Education and Medical Treatment
Existing Position
- TCS at 5% on LRS remittances for education or medical treatment
- Applicable where remittance exceeds ₹10 lakh
Proposed Change
- TCS rate reduced to 2%
- Threshold of ₹10 lakh continues for these categories
Table 2: TCS on LRS Remittances (Education & Medical)
| Particulars | Existing Provision | Proposed Provision |
| Purpose | Education / Medical treatment | Education / Medical treatment |
| Threshold | Above ₹10 lakh | Above ₹10 lakh |
| TCS Rate | 5% | 2% |
Implications
- Relief to individuals incurring genuine education and healthcare expenses
- Lower cash-flow burden without removing reporting trail
3. Overseas Tour Programme Packages – Major Restructuring
Existing Structure
- TCS at 5% up to ₹10 lakh
- TCS at 20% on amount exceeding ₹10 lakh
Proposed Change
- Single TCS rate of 2%
- Complete removal of the ₹10 lakh threshold
- Applies irrespective of the transaction value
Table 3: TCS on Overseas Tour Programme Packages
| Particulars | Existing Provision | Proposed Provision |
| Threshold | ₹10 lakh | No threshold |
| TCS Rate | 5% / 20% | 2% (uniform) |
Policy Rationale (as per Memorandum)
- High TCS rates led to:
- booking through overseas operators, and
- loss of business for Indian tour operators
- Lower uniform rate expected to:
- improve compliance, and
- support domestic tourism businesses
What the Amendment Does and Does Not Do
What It Does
- Introduces rate uniformity across multiple categories
- Reduces excessively high upfront tax collection
- Simplifies TCS compliance and administration
- Balances revenue tracking with taxpayer convenience
What It Does Not Do
- ❌ Does not remove TCS mechanism
- ❌ Does not alter timing of collection
- ❌ Does not remove reporting or PAN linkage requirements
Effective Date
✔ 1 April 2026
✔ Applicable for tax year 2026-27 and subsequent years
Conclusion
Clause 73 of the Finance Bill, 2026 marks a pragmatic rationalisation of TCS rates under section 394 of the Income-tax Act, 2025. By converging multiple rates into a largely uniform 2% structure, lowering the burden on overseas travel and essential LRS remittances, and removing distortionary thresholds, the amendment aims to simplify compliance, reduce disputes, and support affected sectors.
The proposal reflects a shift from punitive upfront collection to balanced tax monitoring, while retaining the integrity of the TCS framework.
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