The Big Change: TCS on Travel Gets Cheaper
In a significant move for travellers, the Union Budget 2026 reduced the Tax Collected at Source (TCS) on overseas tour packages to a flat 2%, regardless of the cost. This is a major change from the previous system, where a 5% TCS was levied on packages up
to ₹10 lakh and a steep 20% was applied on amounts exceeding that. This tax is collected by your travel operator when you book the package. The primary benefit is improved cash flow; less of your money is blocked upfront. It is important to remember that TCS is not an additional tax but an advance tax that you can claim back or adjust against your total income tax liability when filing your returns.
It's Not Just Tour Packages
The TCS relief also extends to other essential overseas payments under the Liberalised Remittance Scheme (LRS). For remittances related to education and medical treatment, the TCS rate has been reduced from 5% to 2% on amounts exceeding the ₹10 lakh threshold per financial year. However, for most other remittances, such as investments, property purchase, or sending gifts, the 20% TCS rate still applies on amounts above the ₹10 lakh threshold. It's also crucial to note that spending on international credit cards while overseas is currently not subject to TCS.
The Hidden Fee You Don't See: Forex Markup
While the TCS cut is welcome, it doesn't eliminate the other costs of spending money abroad. The biggest and most common is the foreign exchange (forex) markup fee. When you use your Indian credit or debit card for an international transaction, the bank charges a markup on the currency conversion, typically ranging from 1.8% to 3.5%. This fee isn't listed separately on your statement but is built into the final rupee amount you are charged, making it a hidden cost that adds up significantly. Over a long trip, these fees can amount to thousands of rupees.
The Sneaky Choice: Dynamic Currency Conversion (DCC)
At a shop or restaurant abroad, you might be offered the 'convenience' of paying in Indian Rupees. This is called Dynamic Currency Conversion (DCC), and you should almost always decline it. While it seems helpful to see the cost in your home currency, the exchange rate used is often 5-8% worse than market rates. This is a system designed to generate revenue for the merchant's payment processor. By choosing to pay in the local currency (e.g., Euros, Dollars, or Baht), you allow your own bank to handle the conversion, which is almost always cheaper, even with their forex markup.
Smarter Ways to Spend: Forex Cards vs. Credit Cards
To minimise fees, consider your payment tools. A prepaid forex card allows you to load a foreign currency at a locked-in exchange rate before you travel, protecting you from fluctuations. They generally have lower markups than credit cards and are a better option for ATM withdrawals, which can be extremely expensive on credit cards due to cash advance fees and high interest rates. However, some premium credit cards now offer very low or even zero forex markup, making them competitive. The best strategy for many is a combination: use a forex card for planned expenses and daily withdrawals, and keep a credit card for large purchases like hotel security deposits and for emergencies.
