Budget 2026 Brings Income Tax Relief For Accident Victims And Rationalises TCS

Tax Relief On Interest Awarded By Motor Accident Claims Tribunals: The Budget for 2026 has announced relief for motor accident victims by exempting interest awarded by the Motor Accident Claims Tribunal to natural persons from Income Tax. Under this measure, any interest received as part of compensation arising from motor accident claims will not be treated as taxable income.

In addition, tax deduction at source on such interest income will be done away with. This initiative is aimed at ensuring that compensation awarded to accident victims and their families is received in full and without avoidable deductions, while also reducing procedural delays, easing compliance requirements, and minimizing disputes related to taxation of such awards.

Rationalisation Of TCS On Overseas Tour Program Packages:

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Budget for 2026 has proposed a rationalisation of the Tax Collected at Source (TCS) regime applicable to overseas tour program packages. Under this proposal, the existing TCS rates of 5 percent and 20 percent will be reduced to a uniform rate of 2 percent, without any stipulation linked to the amount of expenditure. This measure is intended to simplify the tax framework, reduce upfront cash outflows for individuals, and improve ease of compliance for both taxpayers and tour operators.

Reduction Of TCS Under LRS For Education And Medical Purposes:

To provide targeted relief for individuals remitting funds abroad for essential needs, the Budget for 2026 has announced a reduction in the TCS rate applicable under the Liberalized Remittance Scheme for education and medical purposes. The TCS rate on such remittances will be reduced from the existing 5 percent to 2 percent. This initiative aims to lower the financial burden on students and patients, ensure smoother fund flows, and align tax collection more closely with the underlying social objectives of these remittances.

Clarification Of TDS Applicability On Supply Of Manpower Services:

In order to remove ambiguity and ensure uniform tax treatment, the Budget for 2026 has proposed to explicitly include the supply of manpower services within the scope of payments to contractors for the purpose of Tax Deduction at Source. Accordingly, TDS on such services will be applicable at the rate of either 1 percent or 2 percent, as the case may be. This clarification is expected to reduce disputes, enhance certainty for taxpayers, and promote consistent compliance across sectors engaging manpower service providers.