Budget 2026 announces tax relief for accident victims, cuts TCS on foreign travel, education

Union Finance Minister Nirmala Sitharaman on Sunday unveiled a series of tax-related proposals in the Union Budget 2026 aimed at improving ease of living, simplifying compliance, and providing relief to ordinary taxpayers.

Presenting the Budget in Parliament, Sitharaman said the government is focused on making the income tax system simpler and more citizen-friendly. As part of this effort, she announced that interest awarded by the Motor Accident Claims Tribunal to natural persons will be exempt from income tax.

“Any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax and any TDS from this account will be done away with,” she said.

The move is expected to benefit accident victims and their families by ensuring that compensation is not reduced due to tax deductions.

The Finance Minister also announced a significant reduction in tax collection at source (TCS) on overseas spending. She proposed to lower the TCS rate on the sale of overseas tour programme packages to 2 per cent. Currently, the rate stands at 5 per cent and 20 per cent.

Sitharaman clarified that the reduced rate of 2 per cent will apply without any stipulation of amount, making foreign travel transactions simpler and less burdensome for taxpayers.

In another relief measure, she proposed to cut the TCS rate under the Liberalised Remittance Scheme (LRS) for individuals pursuing education and medical treatment abroad from 5 per cent to 2 per cent.

“I propose to reduce TCS rate for pursuing education and for medical purposes under the Liberalized Remittance Scheme, popularly known as LRS,” she said.

This is expected to ease the financial burden on families sending money overseas for education or healthcare.

To remove ambiguity in tax deductions, Sitharaman said the supply of manpower services will be brought within the ambit of payment contractors for the purpose of TDS. Under this proposal, TDS on such services will be applicable at the rate of either 1 per cent or 2 per cent.

The Finance Minister said the move will provide clarity to businesses and service providers and help reduce disputes related to TDS rates.

She also announced a scheme for small taxpayers under which immunity from prosecution will be granted for non-disclosure of small foreign assets. Individuals who fail to disclose non-immovable foreign assets with an aggregate value of less than Rs 20 lakh will be given protection from prosecution.

The exemption will apply retrospectively from October 1, 2024, allowing small-value foreign asset holders to regularise compliance without fear of legal action.

Sitharaman further said that the Income Tax Act, 2025 will come into effect from April 1, 2026. She added that simplified income tax rules and redesigned forms will be notified shortly, giving taxpayers sufficient time to familiarise themselves with the new system.