The Indian Finance Minister presented the 2026-27 budget in Parliament on February 1, 2026. This Budget 2026 introduces several changes to the direct tax system. The main objective of these changes is to simplify the tax system for taxpayers. These rules primarily affect tax deductions on everyday transactions, foreign payments, and services. Keeping these factors in mind, the government has attempted to improve the systems of Tax Deducted at Source (TDS) and Tax Collected at Source (TCS).
What are TDS and TCS?
The government of India has created two separate systems which are TDS and TCS. These both systems actually aim to collect taxes, but both work on different methods. TDS, which is Tax Deducted at Source, is the amount of money which is already deducted from source. In this process, when you are receiving a salary or any other income, the person who is making the payment deducts a portion of some amount as TDS, and after that it get deposited into the government account.
For example, tax is deducted from your salary, bank fixed deposits (FDs) and recurring deposits (RDs), house rent, and fees paid to doctors and lawyers. Usually TDS gets applied on many types of services. Specially When you file your Income Tax Return (ITR), TDS gets adjusted against your tax liability.
The other term is TCS, which stands for Tax Collected at Source. It usually applies when you buy a specific type of goods or send money abroad then the service provider will collect a tax from you and pay it to the government. Typically, TCS is applicable to foreign travel packages, sending money abroad (above a certain limit), purchasing cars (above a certain value), and buying alcoholic beverages, among other things. This tax is collected separately from the base price.
TDS & TCS Changes 2026
The 2026 budget has introduced comprehensive reforms in TDS and TCS. Under TCS, the tax rates on foreign travel packages, overseas education, and medical expenses have been reduced. Several TDS rules have also been made more transparent. New TDS rules will apply to property purchases and hiring individuals on a contract basis, and the hassle of TDS will now be eliminated with the use of PAN. It shows that many important changes will now be implemented in TDS and TCS From 2026. These TDS & TCS Changes 2026 helps to reduce unnecessary deductions and provide relief to businesses and individual taxpayers alike.
TCS Reforms Implemented in 2026
TCS rates in the 2026 budget to ease the burden on taxpayers during foreign transactions. The main changes are as follows:
Foreign tourism packages now have a 2% TCS rate: Previously, TCS on foreign tour packages varied: 5% for amounts up to ₹10 lakh and 20% for packages exceeding ₹10 lakh. This has now been reduced to 2%, and the maximum limit for tour packages has also been removed. This will boost foreign tourism and reduce the administrative burden of TCS.
TCS on remittances for essential expenses : TCS on remittances for essential expenses has also been reduced. For individuals sending money to family members abroad for essential expenses such as education and medical treatment, the TCS rate has been lowered. Previously 5%, it is now 2%. However, if an individual sends more than ₹10 lakh, a 5% TCS will still apply. This new change will primarily benefit students studying abroad and families receiving medical treatment.
TCS increased on certain goods: While TCS has been reduced on foreign services, it has been increased on other goods such as tobacco and tobacco products, minerals, and waste. The TCS rates on these items have been revised from one percent to two percent. These changes have also been made in the public interest to discourage the use of these products.
Major Tax Reforms In Budget 2026
The 2026 budget has tried to simplify the various provisions of TDS, it has eliminated the complex process and made it easier to understand. There are many changes which have been made in this TDS. They are as follows:
TDS rules on supply of manpower: If any company or individual is hiring any person or appointing any staff so they have to follow the rules for TDS. But now the deduction of TDS has been simplified. If a person is appointed on contract basis then the TDS will be 1% and if it comes under Hindu Undivided Families or individuals, the TDS deducted will be 2%.
Easier access to Zero/Nil TDS certificates: Before 2026 if an employee wants to obtain a less or nil TDS certificate then applicants had to visit the tax office and have to follow some guidelines. And that was a very time consuming and lengthy process. But now less and nil TDS certificates can be easily obtained through e-filing.
NRI property transactions have become easier: before this budget, if an NRI was willing to buy property in India, then they had to get a Tax Deduction and Collection Account Number (TAN). But now this requirement has been removed. Now, TDS will be deducted and deposited using only the PAN. This rule has also been made simpler than before.
TDS facility on dividends and interest: If a person invests in various companies, they will now only need to fill out Form 15G or 15H, and this form will be accepted centrally, so TDS will not be deducted unnecessarily.
Motor accident claim interest will be tax-free: Earlier, if a person received compensation with interest from the Motor Accident Claims Tribunal, tax was levied on the interest. However, now there will be no TDS on this.
Effects of TDS & TCS Changes in 2026
Due to these changes in TDS and TCS, TCS on foreign expenses will be reduced. The investment process will no longer depend on TAN; NRIs will be able to buy property in India using only their PAN. Obtaining low and nil TDS certificates will now be easier. Centralized Forms 15G and 15H will be accepted for multiple investments. Companies that supply employees on a contract basis will now only have to pay 1% TDS.
So in short the 2026 budget has made very simple provisions related to TDS and TCS. There is now more transparency and simplicity, which will make it easier for people to understand. TDS and TCS have been reduced in different ways. This new process will be implemented from April 1, 2026, and has been made more efficient and digital than before.