TCS cut: Why foreign spending stays costly

• Budget 2026 cuts TCS rates on overseas tours and medical trips
• Overseas tour TCS drops to a flat 2% from 20% from 1 April 2026
• Travellers must still manage forex markups and avoid DCC traps

Planning an overseas trip or a big international purchase? There's been talk of a TCS cut, making foreign spending cheaper. But before you get too excited, it's crucial to look beyond the tax and understand the full picture of what you'll really pay.

Decoding the 'TCS Cut' of 2026

First, let's clarify what Tax Collected at Source (TCS) is. It's not an extra tax, but an advance tax collected by your bank or travel agent when you spend money abroad under the Liberalised Remittance Scheme (LRS). You can claim this amount back when filing your income tax returns. The headline-making change in Budget 2026 was a significant rationalisation of these rates, effective April 1, 2026. For spending on education and medical treatment, the TCS rate on amounts above ₹10 lakh was reduced from 5% to a much lower 2%. For overseas tour packages, the old slab system was replaced with a flat 2% TCS on the entire amount, a major drop from the previous 20% on higher-value trips. For other general remittances like investments or gifts, the 20% TCS rate still applies, but only on amounts exceeding the ₹10 lakh threshold per financial year.

The Real Cost: Beyond the TCS Rate

Here's where 'tax-relief overconfidence' can be costly. While a lower TCS upfront feels like a saving, it doesn't change the other fees that inflate your purchase price. The most common culprit is the foreign exchange (forex) markup fee. Most Indian credit and debit cards charge a markup of 2% to 3.5% on every international transaction. This fee is your bank's charge for converting rupees into a foreign currency and is often not clearly displayed at the time of purchase. So, on a ₹1,00,000 spend, a 3.5% markup fee adds an extra ₹3,500 to your bill, completely separate from any TCS.

Beware the Dynamic Currency Conversion Trap

Another significant cost is Dynamic Currency Conversion (DCC). This happens when a foreign merchant's payment terminal offers to charge you in Indian Rupees (INR) instead of the local currency. While it seems convenient to see the price in a familiar currency, accepting this offer is almost always a mistake. The exchange rate used for DCC is set by the merchant's bank, not yours, and typically includes a much higher markup than your own bank's rate. To avoid this, always choose to pay in the local currency (Euros in Europe, Dollars in the US, etc.) and let your own card's network handle the conversion.

How to Be a Smarter Spender Overseas

True savings come from a smart strategy, not just lower TCS. First, investigate getting a credit or forex card with zero or low forex markup fees; several banks now offer these specifically for travellers. Second, always pay in the local currency to steer clear of DCC. Third, for larger payments like tuition fees, remember that using an education loan can bring your TCS rate down to zero. Finally, if you are not booking a consolidated tour package, consider booking flights and hotels separately. Individual transactions may not be classified as a 'tour package', potentially altering the TCS treatment and allowing you to better utilise the ₹10 lakh threshold for other LRS remittances.