Budget 2026 TCS on International Tour Packages: Flat 2% Rate Explained and How to Avoid It on Flight Bookings

How did Budget 2026 change TCS on international tour packages?

Budget 2026, presented in February 2026 and effective from April 1, 2026, replaced the old 5%/20% slab structure with a single flat 2% TCS on all overseas tour packages, regardless of the total cost. This is governed under the newly renumbered Section 394(1) of the Income Tax Act, 1961 (previously Section 206C(1G)).

The old structure was genuinely punishing for high-value holidays. From October 2023 through March 2026, a tour package cost above ₹10 lakh attracted 20% TCS on the portion exceeding that threshold — meaning a ₹15 lakh Europe family holiday saw TCS of ₹50,000 on the first ₹10 lakh (at 5%) plus ₹1,00,000 on the remaining ₹5 lakh (at 20%), totalling ₹1,50,000 in advance tax deducted before you even boarded the flight. From April 1, 2026, the same ₹15 lakh package incurs just ₹30,000 TCS at the flat 2% rate — an 80% reduction.

Old TCS: 5% on first ₹10 lakh, 20% on amount above ₹10 lakh. New: flat 2% from ₹0, effective April 1, 2026. Source: Income Tax India / Budget 2026 Finance Bill.

What exactly counts as an overseas tour package for TCS?

An overseas tour package is any product sold by a tour operator or travel agent that bundles at least two of the following components for travel outside India: international travel tickets (air or sea), hotel accommodation (with or without meals), and local transfers, sightseeing, or guided tours. A standalone airline ticket — purchased on its own without any bundled service — is never classified as an overseas tour package and attracts zero TCS.

This definition has significant practical implications. A Dubai flight + hotel bundle sold by a travel agent as a single product triggers the 2% TCS. But if you book the Dubai flight on MakeMyTrip and the Dubai hotel on Booking.com under two separate transactions, neither qualifies as a tour package — no TCS applies to either.

How does booking flights and hotels separately eliminate TCS?

Booking your international flight and your hotel as two independent transactions — under separate invoices, from separate platforms — means neither transaction meets the legal definition of an overseas tour package, and therefore neither attracts TCS. This is fully legal and the most commonly used strategy among Indian frequent flyers who understand TCS mechanics.

The arithmetic is compelling even under the new flat 2% rate. Consider an Indian professional booking a 7-night Singapore trip costing ₹1,20,000 total: ₹50,000 for flights and ₹70,000 for the hotel. As a bundled package, TCS = 2% × ₹1,20,000 = ₹2,400. As two separate bookings, TCS = ₹0. The cash stays in your account rather than being locked as an advance tax credit for 6–9 months until ITR processing.

On-the-Ground Insight: "I booked a Dubai trip for my parents last Diwali through a travel agent — a ₹2,80,000 package. The agent collected ₹5,600 as TCS at the time. I only recovered it seven months later when I filed their ITR. This year I booked the flights on EaseMyTrip and the hotel directly on the Marriott website. Zero TCS, and I could allocate that ₹5,600 to their pocket money instead." — Rohan M., finance professional, Mumbai, August 2026

Calculate your TCS savings: old rate vs new rate

Use this calculator to compare the TCS charged under the old 5%/20% slab structure (pre-April 2026) versus the new flat 2% rate under Budget 2026. The old rate applied 5% on the first ₹10 lakh and 20% on any amount above ₹10 lakh. The new rate is a flat 2% from the first rupee. The calculator below is pre-filled with ₹5,00,000 (₹500,000) — the same mid-range package cost used as the worked example earlier in this guide (see the TL;DR above and the comparison table) — but you can enter your own package cost.

How do you claim TCS back when filing your ITR?

TCS collected on an overseas tour package is not a final tax — it is advance tax credit that offsets your income-tax liability when you file your Income Tax Return (ITR) for Assessment Year 2026-27. Any excess TCS (where your tax liability is lower than the TCS collected, or if you are not a taxpayer) is refunded to your bank account by the Income Tax Department.

The step-by-step process for AY 2026-27:

Step 1 — Collect your TCS certificate (Form 27D). Your travel agent is legally required to issue a Form 27D showing the TCS collected, your PAN, and the nature of payment. Demand this at the time of booking; it is the primary document for your ITR claim.

Step 2 — Verify TCS in Form 26AS and AIS. Log in to incometax.gov.in and open Form 26AS (tax statement) and your Annual Information Statement (AIS). The TCS collected by the travel agent should appear as a credit under "Tax Collected at Source" within 30–45 days of the transaction. Cross-check the figures against your Form 27D — any discrepancy must be resolved with the travel agent before filing.

Step 3 — File your ITR and claim Schedule TCS. When you open a new ITR filing for AY 2026-27 (covering income earned during FY 2025-26 or FY 2026-27 as applicable), the portal auto-populates Schedule TCS with the TCS entries from your Form 26AS. Verify these figures, ensure your PAN is correctly quoted, and proceed to submit. The TCS credit reduces your net payable tax. If TCS exceeds your liability, the portal calculates a refund automatically.

Step 4 — E-verify your return. Without e-verification, refund processing does not begin. The fastest method is Aadhaar OTP via the Income Tax portal. Clean returns with no liability mismatches typically see TCS refunds credited within 4–8 weeks of e-verification.

Does TCS under Section 394(1) apply to NRIs and OCI card holders?

TCS on overseas tour packages under Section 394(1) applies when a tour operator or travel agent in India collects payment from the buyer — and it is the residency status of the buyer under FEMA that determines applicability, not citizenship or OCI status. In practical terms, NRIs are largely unaffected, but the details matter.

The Reserve Bank of India's Liberalised Remittance Scheme governs outward remittances for resident Indians and sets the framework within which most TCS-related provisions operate. NRIs — defined as individuals who are not residents of India under FEMA — do not use LRS and are therefore not subject to TCS on their foreign remittances from NRE or NRO accounts. Their remittance channels are separately governed by RBI's NRI banking guidelines.

For Indian students studying abroad (e.g., in Ireland or the UK) who have become NRIs for FEMA purposes: if you book a holiday to Europe through an Indian travel agent while on a visit to India, the agent may levy TCS. If you book the same trip online from your country of residence using your NRE-linked debit card or international credit card, no TCS applies. The transaction's point of origination and the FEMA status at the time of booking are both relevant.

Which platforms should you use to book flights and hotels separately?

To avoid TCS entirely, you need to ensure your flight and hotel are purchased under two separate invoices from two separate providers — and that neither provider bundles them into a single "holiday package" at checkout. The following platforms reliably support standalone flight booking without cross-selling bundled packages in the payment flow.

The safest workflow: book your international flight directly on the airline's website or via EaseMyTrip/MakeMyTrip Flights tab, paying with an Axis or HDFC travel credit card to maximise reward points. Then, 24–48 hours later, book the hotel separately on Booking.com or directly with the property. Keep both invoices on file to demonstrate the split-booking structure if ever questioned.

Frequently asked questions