The Union Budget 2026–27, presented on 1 February 2026, introduces the ITA (Income Tax Act), 2025, which significantly rationalises TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) frameworks to ease cash flow and simplify compliance.
Key TCS Rate Changes
In a significant move to ease the upfront financial burden on citizens, the Union Budget 2026-27 has overhauled the Tax Collected at Source (TCS) structure for foreign remittances and specific domestic sales. The most notable relief is for international travellers, where the TCS on overseas tour packages has been slashed from a high of 20% to a flat 2% rate with no threshold limits. Similarly, remittances for education and medical treatment under the Liberalised Remittance Scheme (LRS) have seen a rate reduction from 5% to 2% for amounts exceeding ₹10 lakh, while students financing their studies through educational loans (u/s 80E) are now completely exempt from TCS.
While the rate for other general LRS purposes remains unchanged at 20%, the budget also rationalised rates for industrial and commodity trades; TCS on tendu leaves was reduced from 5% to 2%, whereas rates for scrap, minerals, and alcoholic liquor were adjusted to a uniform 2% to streamline the indirect tax framework.
Major TDS Rationalisations
• Supply of Manpower: Clarified that “supply of manpower” is included in the definition of “work” (corresponding to Section 194C). TDS will now be deducted at 1% for individuals/HUFs and 2% for others, removing ambiguity over whether it fell under professional fees (10%).
• Motor Accident Claims: Interest awarded by the MACT (Motor Accident Claims Tribunal) is now fully tax-exempt for individuals. Consequently, no TDS will be deducted on such interest.
• Property Sales by NRIs: Resident individual buyers purchasing property from non-residents are no longer required to obtain a TAN. They can now deduct and deposit TDS using only their PAN.
Compliance and Procedural Updates
• Lower/Nil TDS Certificates: A new rule-based automated process allows small taxpayers to obtain LNDC (lower or nil deduction certificates) electronically without manual intervention from an assessing officer.
• Form 15G/15H Centralisation: Depositories (NSDL/CDSL) will now centrally accept Form 15G/15H and forward them to companies to prevent unnecessary TDS on dividends and interest for low-income individuals.
• Decriminalisation: Minor and technical TDS defaults (e.g., non-production of books) have been shifted from criminal liability to fee-based penalties.
• Binding Guidelines: Any instructions provided by the CBDT to remove difficulties in implementing TDS/TCS provisions are now expressly binding on both tax authorities and deductors.
These changes are proposed to take effect from 1 April 2026.
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