Budget 2026 – Significant Changes in TDS and TCS Provisions

The Union Budget 2026 has introduced important changes in Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions. The government has focused on rationalisation of rates, removal of duplication, and ease of compliance for individuals, businesses, and institutions.

Reduction in TCS on Overseas Tour Packages

One of the most significant changes relates to TCS on overseas tour programme packages.

• The Budget reduces the TCS rate to 2% on the sale of overseas tour packages. This change replaces the earlier structure of higher TCS rates.
• There is no threshold limit for applicability. TCS applies from the first rupee of expenditure.

This move reduces upfront tax outflow for individuals planning foreign travel and improves liquidity.

Reduction in TCS under Liberalised Remittance Scheme (LRS)

The government has also reduced TCS rates under the Liberalised Remittance Scheme.

Education and Medical Purposes

TCS on remittances for Education and Medical treatment now stands at 2%.

This change applies regardless of whether the remittance is made from own funds or through loans. The reduced rate lowers financial pressure on families sending money abroad for essential purposes.

Rationalisation of TDS on Manpower Supply Services

Budget 2026 introduces a clear TDS structure for manpower supply services.

TDS on supply of manpower services will apply at:

• 1% in certain cases
• 2% in other prescribed cases

The applicable rate depends on the nature of the payer and payee as defined under the Act. This clarification removes disputes related to classification of services.

Removal of TDS on Motor Accident Compensation Interest

• The Budget removes TDS on interest awarded by Motor Accident Claims Tribunals to individuals.
• Interest received by a natural person under such awards is now fully exempt from TDS.
• This relief ensures full and timely receipt of compensation by accident victims and their families.
• The government has introduced a rule-based automated process for issuing lower or nil TDS certificates.
• Small taxpayers can now apply through a digital system without manual intervention.
• The automated process reduces delays and improves transparency.

Simplified Process for Lower or Nil TDS Certificates

Single PAN-Based Compliance for Property Sale by Non-Residents

For sale of immovable property by non-residents, the Budget simplifies TDS compliance.

TDS must now be deducted and deposited using the resident buyer’s PAN, instead of requiring a separate TAN. This change reduces procedural burden on individual buyers.

Decriminalisation of Certain TDS Defaults

Budget 2026 decriminalises specific procedural defaults related to TDS.

The following acts no longer attract criminal prosecution:

• Non-production of books of account
• Certain delays in TDS payment

Civil consequences such as interest and penalty continue to apply. This change supports a trust-based tax administration framework.

Expanded Immunity Framework for TDS and Reporting Errors

The Budget extends the framework for immunity from penalty and prosecution.

Immunity now covers cases of:

• Underreporting
• Misreporting

subject to prescribed conditions and payment of applicable tax. This measure reduces prolonged litigation.

Acceptance of Form 15G and 15H by Depositories

Depositories can now accept Form 15G and Form 15H from taxpayers holding securities in multiple companies. This change removes duplication and ensures uniform TDS treatment on interest and dividend income.

Revised Timelines Impacting TDS Compliance

• The Budget extends the time limit for filing revised returns.
• Taxpayers can revise returns up to 31 March, subject to payment of a nominal fee.
• This extension allows correction of TDS-related reporting errors.

Impact on Taxpayers and Businesses

The TDS and TCS changes in Budget 2026:

• Reduce upfront tax burden
• Improve cash flow
• Simplify compliance
• Reduce litigation

The focus remains on voluntary compliance and digital processes.

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