TCS stands for Tax Collected at Source. When you send (remit) money overseas for any purpose, Indian rupees are converted into foreign currency. Such overseas payments fall under the RBI’s Liberalised Remittance Scheme (LRS).

Under LRS, an individual can remit up to USD 250,000 in a financial year. At the time of making this remittance, a tax is collected as TCS. It is treated as an advance tax paid on your behalf. It is adjusted when you file your Income Tax Return (ITR). And any excess amount paid can be claimed as a refund.

Let us take a quick example to understand this better.

The income tax liability, tax already paid, and tax refund for Ms Seema are as follows;

Earlier, the TCS rate on payments for overseas tour programme packages was 5% for expenses up to ₹10 lakh and 20% for expenses above ₹10 lakh. An overseas tour programme package includes expenses such as travel, accommodation, and other related services.

Now, the TCS rate has been reduced to a flat 2%, with no limit on the amount. This rate cut reduces the amount that you need to pay for the tour package at the time of booking. It reduces the overall travel cost and paves the way for more affordable international travel.
Let us quickly understand how this works with an example.

Consider Ms Seema, who often looks for cheap international travel vacations while creating beautiful memories. She spends ₹8 lakh on an overseas tour programme package while visiting a few Schengen countries. The TCS applicable before and after the rate cut is shown below:

With the TCS rate reduced from 5% to 2%, Ms Seems saves ₹24,000 at the time of booking.

Tax Advantage Beyond Tourism

Remittances for overseas education and medical treatment were tax-free up to ₹10 lakh, with 5% TCS on payments made above ₹10 lakh. This TCS rate has been reduced to 2%, and remittances made towards education loans remain fully tax-exempt.

• Lower amount at the time of booking- The amount that you need to pay while booking your overseas trip comes down. This makes it easier to plan trips to cheap international destinations.

• Better affordability- The lower TCS helps you manage your travel budget, which may support cheap international travel for budget-conscious travellers.

• More flexibility to use your money- Since less money is collected as TCS, you can use the saved amount for other travel needs like local shopping, local transport, or travel essentials.

• Lesser amount pending as tax refund- With a reduced TCS rate, a lower amount remains blocked. This means you don’t have to wait for a large sum to be refunded.

• Plan longer or multiple trips- With the money saved, you can extend your trip for a couple of days or plan multiple trips in a year.

• Choose travel insurance with broader coverage- The savings can be used to choose travel insurance with a higher sum insured or include optional add-ons based on your specific travel needs.

The TCS rate cut from 5% (or 20%) to 2% reduces the amount you need to pay while booking overseas tour programme packages. This helps you manage your travel budget better and explore more options for inexpensive international trips.

When planning an overseas trip, international travel insurance can help in managing medical and travel-related emergencies. You can explore TATA AIG travel insurance online to choose country-specific plans that suit your travel needs.

If you are sending funds for your child’s overseas education, the rate cut of 2% will apply to your remittances. You can also consider student travel insurance for coverage against medical emergencies, loss of sponsorship, and study interruptions due to unexpected events.