The Finance Bill, 2026 proposes a comprehensive rationalisation of Tax Collected at Source (TCS) rates under section 394(1) of the Income-tax Act, 2025, with the objective of simplifying compliance and providing relief to taxpayers where feasible. Multiple differential TCS rates are proposed to be aligned to a uniform rate of 2% across several categories. The TCS rate on sale of alcoholic liquor for human consumption, scrap, and specified minerals such as coal, lignite, and iron ore is proposed to be increased from 1% to 2%, while the rate on sale of tendu leaves is reduced from 5% to 2%. For remittances under the Liberalised Remittance Scheme (LRS) for education and medical treatment exceeding ₹10 lakh, the TCS rate is proposed to be reduced from 5% to 2%, with the higher 20% rate for other purposes retained. Significantly, the threshold for overseas tour programme packages is removed, and a flat 2% TCS is proposed irrespective of amount. These amendments will apply from 1 April 2026.
Rationalisation of TCS rates
Section 394(1) of the Act provides multiple rates for collection of tax at source (TCS). It is proposed to rationalize the rates of TCS by providing uniform rates to the extent possible. It is also proposed to reduce some of the rates so as to provide relief to the collectees.
2. Table: Sl. No. 1 of the said section provides that TCS on sale of alcoholic liquor for human consumption be collected at the rate of 1%. It is proposed that the rate shall be increased to 2%.
3. Table: Sl. No. 2 of the said section requires that 5% TCS be collected on sale of tendu leaves. It is proposed that the rate shall be reduced to 2%.
4. Table: Sl. No. 4 of the said section requires for collection of tax at source by the seller at the rate of 1% on sale of scrap. It is proposed that the rate shall be increased to 2%.
5. Table: Sl. No. 5 of the said section requires that TCS be collected at the rate of 1% on sale of minerals, being coal or lignite or iron ore. It is proposed that the rate shall be increased to 2%.
6. Table: Sl. No. 7 of the said sub-section requires for TCS on remittances made under Reserve Bank of India’s Liberalised Remittance Scheme (LRS). At present, TCS at 5% is collected if remittance is for the purposes of education or medical treatment and the remittance amount is more than ten lakh rupees. It is proposed to reduce the rate of TCS to 2%
8. Table: Sl. No. 8 of the said sub-section requires TCS at the rate of 5% and 20% on sale of overseas tour programme package including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure. It is proposed to reduce the rate of TCS to 2%. It is further proposed that threshold for applicability of the provision be removed and TCS on sale of overseas tour programme package be collected at 2% irrespective of the amount. This will address the concern of shifting of business from domestic tour operators to overseas tour operators.
9. Therefore, rationalisation of TCS rates is proposed as follows:—
| Sl. No | Nature of receipt | Current Rate | Proposed Rate |
| 1 | Sale of alcoholic liquor for human consumption. | 1%. | 2%. |
| 2. | Sale of tendu leaves. | 5%. | 2%. |
| 3. | Sale of scrap. | 1%. | 2%. |
| 4. | Sale of minerals, being coal or lignite or iron ore. | 1%. | 2%. |
| 5. | Remittance under the Liberalised Remittance Scheme of an amount or aggregate of the amounts exceeding ten lakh rupees— | (a) 5% for purposes of education or medical treatment;
(b) 20% for purposes other than education or medical treatment. |
(a) 2% for purposes of education or medical treatment;(b) 20% for purposes other than education or medical treatment. |
| 6. | Sale of “overseas tour programme package” including expenses for travel or hotel stay or boarding or lodging or any such similar or related expenditure. | (a) 5% of amount or aggregate of amounts up to ten lakh rupees;
(b) 20% of amount or aggregate of amounts exceeding ten lakh |
2% |
9. The amendment will take effect from the 1st day of April, 2026.
[Clause 73]
Extract of Relevant Clauses of Finance Bill, 2026
Clause 73 of the Bill seeks to amend section 394 of the Income-tax Act, 2025 relating to collection of tax at source.
Sub-section (1) of the said section, inter alia, provides that every person shall collect tax at source at the time of debiting of the amount payable or at the time of receipt of such amount from the buyer or licensee or lessee, as the case may be, whichever is earlier, on the receipts specified in that said sub-section.
It is proposed to amend the said sub-section so as to rationalise the rates of tax collected at source for the purpose of sale of––
i. alcoholic liquor for human consumption;
ii. tendu leaves;
iii. scrap; and
iv. minerals being coal or lignite or iron ore, tax will be required to be collected at source at the rate of 2%.
It is further proposed to amend the said sub-section so as to require that for remittances made under the Reserve Bank of India’s Liberalised Remittance Scheme for the purposes of education or medical treatment, tax will be collected at source at the rate of 2% instead of the existing rate of 5%.
It is also proposed to amend the said sub-section so as to remove the threshold of 10 lakhs on sale of overseas tour program package for applicability of tax collected at source at higher rate of 20% and to require that on sale of overseas tour program package, tax be collected at source at the rate of 2% irrespective of the amount.
These amendments will take effect from 1st April, 2026.
Extract of Relevant Amendment Proposed by Finance Bill, 2026
73. Amendment of section 394.
In section 394 of the Income-tax Act, in sub-section (1), in the Table,—
(a) against Sl. No. 1, in column D, for the figure and symbol “1%”, the figure and symbol “2%” shall be substituted;
(b) against Sl. No. 2, in column D, for the figure and symbol “5%”, the figure and symbol “2%” shall be substituted;
(c) against Sl. No. 4, in column D, for the figure and symbol “1%”, the figure and symbol “2%” shall be substituted;
(d) against Sl. No. 5, in column D, for the figure and symbol “1%”, the figure and symbol “2%” shall be substituted;
(e) against Sl. No. 7, in column D, in clause (a), for the figure and symbol “5%”, the figure and symbol “2%” shall be substituted;
(f) against Sl. No. 8, in column D, for clauses (a) and (b), the figure and symbol “2%” shall be substituted.
