TCS on foreign tour packages FY 2026-27 — 5% vs 20% threshold explained

TCS on Foreign Tour Packages FY 2026-27 — 5% vs 20% Threshold Explained

Latest TCS Rules, Rate, Threshold, Examples, Compliance & Practical Guide

Introduction

International travel has become increasingly common for Indians, whether for leisure, business, family vacations, education-related travel or organised overseas tours. Along with the cost of flights, hotels and other travel services, travellers purchasing an overseas tour programme package also need to understand the Tax Collected at Source (TCS) provisions.

TCS on overseas tour programme packages has undergone significant changes in recent years.

Under the earlier framework applicable up to FY 2025-26, the commonly discussed structure was:

5% TCS up to ₹10 lakh, and

20% TCS on the amount exceeding ₹10 lakh.

However, this is not the correct rate for FY 2026-27.

From 1 April 2026, the new tax framework has rationalised the provision. TCS on the sale of an overseas tour programme package is now prescribed at 2% irrespective of the amount. The ₹10 lakh threshold for applying the higher 20% rate has been removed.

Therefore, anyone preparing invoices, accounting entries, TCS returns or tax-compliance content for FY 2026-27 should be particularly careful not to carry forward the old 5%/20% calculation.

1. What Is TCS on an Overseas Tour Package?

TCS means Tax Collected at Source.

In the case of an overseas tour programme package, the responsibility to collect TCS generally falls on the seller of the overseas tour programme package.

In simple terms:

When a customer purchases a qualifying overseas tour programme package from a tour operator, the tour operator collects TCS from the customer and deposits that amount with the Government.

The amount collected is not normally an additional final tax burden for the customer. It is generally available as tax credit, subject to proper reporting and matching in the taxpayer’s tax records.

2. Which Provision Applies?

For the earlier framework, the provision was contained in Section 206C(1G) of the Income-tax Act, 1961.

However, FY 2026-27 is also important because the Income-tax Act, 2025 comes into effect from 1 April 2026, with the corresponding TCS provisions placed under the new framework.

The Finance Bill 2026 specifically refers to Section 394 of the Income-tax Act, 2025 for TCS and rationalises the rates for overseas tour programme packages.

Thus, professionals dealing with FY 2026-27 transactions should be careful about the applicable statutory reference rather than continuing to use only the old Section 206C references.

3. The Biggest Change for FY 2026-27

This is the most important update.

Earlier framework — FY 2025-26

Package amount TCS

Up to ₹10 lakh 5%

Amount exceeding ₹10 lakh 20%

FY 2026-27

Package amount TCS

Any amount 2%

₹10 lakh threshold Removed

20% higher rate Not applicable to overseas tour package

The Finance Bill 2026 expressly proposed removal of the ₹10 lakh threshold for the higher 20% TCS rate and prescribed 2% irrespective of the amount for sale of an overseas tour programme package, effective from 1 April 2026.

4. Why Are People Still Searching for 5% vs 20%?

The confusion exists because the 5%/20% structure was applicable under the earlier regime.

The Income-tax Department’s TCS information for the earlier framework describes:

5% on overseas tour programme packages up to ₹10 lakh; and

20% on the amount exceeding ₹10 lakh.

Therefore, articles, old software settings, previous-year calculators and older FAQs may still display the 5%/20% structure.

But for FY 2026-27:

Do not apply the old 5%/20% calculation.

The applicable rate is 2%.

5. What Is an Overseas Tour Programme Package?

The nature of the transaction is important.

The provision applies to the sale of an overseas tour programme package.

Therefore, businesses should not mechanically classify every international travel-related transaction as an overseas tour programme package without examining the actual arrangement.

For example, the following should be separately examined:

International flight ticket;

Hotel booking;

Travel package;

Group tour;

Holiday package;

Cruise package;

Travel + hotel package;

Travel + accommodation + sightseeing package.

The contractual structure and actual nature of the package should be reviewed.

6. Is Every Foreign Flight Ticket Subject to This TCS?

Not necessarily.

A standalone international air ticket should not automatically be treated as an overseas tour programme package merely because the destination is outside India.

The specific statutory definition and nature of the arrangement should be examined.

For a tour operator, this distinction is important because incorrect classification can result in:

Excess TCS collection;

Short TCS collection;

Customer complaints;

Reconciliation problems;

Incorrect TCS returns.

7. Is a Standalone Hotel Booking an Overseas Tour Package?

Again, not automatically.

A standalone overseas hotel reservation and a bundled overseas tour programme are not necessarily the same transaction.

For example:

Case A

Customer purchases only:

Dubai Hotel — ₹1,50,000

The transaction should be examined based on its actual nature.

Case B

Customer purchases:

Delhi–Dubai return flight;

Hotel;

Airport transfer;

Sightseeing;

Local transportation;

as one organised overseas tour package.

This is much more clearly a package arrangement requiring consideration under the overseas tour programme provisions.

8. FY 2026-27 Rate — 2%

For transactions falling in FY 2026-27, the applicable TCS rate for sale of an overseas tour programme package is:

2%

There is no separate:

5% slab;

20% slab;

₹10 lakh trigger for the higher rate.

The Finance Bill 2026 specifically states that TCS on sale of an overseas tour programme package will be collected at 2% irrespective of the amount from 1 April 2026.

9. Example — Tour Package of ₹5 Lakh

Suppose:

Overseas tour package = ₹5,00,000

TCS:

₹5,00,000 × 2%

= ₹10,000

Customer payment

Particular Amount

Tour package ₹5,00,000

TCS @ 2% ₹10,000

Total collected ₹5,10,000

10. Example — Tour Package of ₹10 Lakh

Suppose the package value is:

₹10,00,000

TCS:

₹10,00,000 × 2%

= ₹20,000

Total:

₹10,20,000

There is no special treatment merely because the package value reaches ₹10 lakh.

11. Example — Tour Package of ₹15 Lakh

Suppose:

Overseas tour package = ₹15,00,000

Under FY 2026-27:

TCS = ₹15,00,000 × 2%

= ₹30,000

Important

The old calculation would have required a split between the lower and higher rates.

That calculation should not be used for FY 2026-27 transactions.

12. Example — Tour Package of ₹25 Lakh

Package:

₹25,00,000

TCS @ 2%:

₹50,000

Customer’s total payment, assuming TCS is separately collected:

₹25,50,000

Again, there is no 20% TCS on the amount above ₹10 lakh under the FY 2026-27 overseas tour package provision.

13. Comparison: FY 2025-26 vs FY 2026-27

Particular FY 2025-26 FY 2026-27

Up to ₹10 lakh 5% 2%

Above ₹10 lakh 20% 2%

₹10 lakh threshold Applicable Removed for higher rate

Higher 20% rate Applicable above threshold Not applicable to tour package

Effective date Up to 31 March 2026 From 1 April 2026

Main compliance framework Section 206C(1G), IT Act 1961 Section 394, IT Act 2025

The Finance Bill 2026 clearly provides that these changes take effect from 1 April 2026.

14. The ₹10 Lakh Threshold — What Happened?

The ₹10 lakh figure has not disappeared from every TCS rule.

This is where another major confusion can arise.

The ₹10 lakh threshold continues to be relevant for certain Liberalised Remittance Scheme (LRS) transactions.

But for the sale of an overseas tour programme package, the Finance Bill 2026 removes the threshold for the higher rate and applies 2% irrespective of the amount.

Therefore:

Do not confuse the TCS threshold for LRS remittances with the TCS rule for overseas tour packages.

15. Overseas Tour Package vs LRS Remittance

These are two different transactions.

Overseas Tour Package

Seller:

Tour operator

TCS:

2% for FY 2026-27

LRS Remittance

Responsible person:

Authorised dealer/bank

TCS treatment:

Depends on the purpose and applicable threshold/rate.

Therefore, simply saying:

“Foreign travel = 2% TCS”

would be an oversimplification.

The underlying transaction must first be identified.

16. Who Has to Collect TCS?

For an overseas tour programme package, the seller of the package is responsible for collection.

This means a tour operator selling qualifying packages needs to configure its accounting/invoicing system correctly.

The seller should have controls for:

Customer PAN;

Package value;

TCS rate;

TCS amount;

Date of receipt;

Invoice;

TCS ledger;

Deposit;

TCS return;

Customer reconciliation.

17. When Is TCS Collected?

The general TCS timing principle is based on the earlier of:

Debiting the amount payable by the buyer, or

Receipt of the amount from the buyer.

The Finance Bill’s amendment to the TCS framework continues this basic timing mechanism.

Therefore, businesses should not wait until the customer completes the entire tour before considering TCS compliance.

18. Advance Payment

Suppose a customer books a foreign tour package for:

₹12 lakh

and pays:

₹3 lakh advance.

The seller should examine the TCS requirement at the time the relevant amount is received/debited under the applicable provision.

A proper accounting system should therefore calculate TCS even where the customer makes payment in instalments.

19. Instalment Example

Package value:

₹20,00,000

Customer pays:

₹5 lakh booking advance;

₹5 lakh second instalment;

₹10 lakh final payment.

At 2%, the total TCS on the eligible package value would be:

₹20,00,000 × 2%

= ₹40,000

The exact collection mechanics should be configured according to the applicable timing rule and actual invoice/payment structure.

20. Is TCS an Expense for the Customer?

Normally, TCS collected from the customer is not intended to become a final expense merely because it is collected upfront.

It is generally reflected as tax credit in the customer’s tax records.

The customer can generally claim the available TCS credit against their tax liability, subject to the applicable return and credit rules.

Therefore, travellers should not confuse:

Tour cost

with

TCS collected.

21. TCS Credit

Suppose:

Tour package:

₹8,00,000

TCS @ 2%:

₹16,000

The customer should ensure that the TCS is correctly reported against the customer’s PAN.

The customer can then verify the tax credit through the applicable tax information statement/annual tax statement and claim the eligible credit in the income-tax return.

22. Why PAN Is Important

The tour operator should obtain and correctly record the buyer’s PAN or other prescribed identification details, as applicable.

Incorrect PAN reporting can cause:

TCS not appearing correctly;

Credit mismatch;

Customer complaints;

Rectification work;

Refund/credit issues.

Therefore, PAN verification should be part of the booking process.

23. Accounting Treatment for Tour Operator

A tour operator should ideally maintain separate ledgers such as:

Tour Package Sales

₹XX

TCS Payable

₹XX

Customer Receivable

₹XX

The TCS collected should not be treated as normal business income.

It represents an amount collected on behalf of the Government.

24. Practical Accounting Example

Suppose:

Tour package:

₹10,00,000

TCS:

₹20,000

Customer invoice/collection:

₹10,20,000

The accounting system should separately identify:

Revenue = ₹10,00,000

TCS payable = ₹20,000

rather than incorrectly treating ₹10,20,000 as pure tour revenue.

25. GST and TCS Are Different

This is another important practical point.

GST

is an indirect tax on supply of goods/services.

TCS

is tax collected at source under income-tax law.

Therefore:

GST and TCS should not be mixed up.

A tour operator may have both GST obligations and TCS obligations depending on the transaction.

The GST taxability of the tour service should be separately examined.

26. Is TCS Calculated on GST-Inclusive Amount?

This requires careful examination based on the applicable TCS provision and nature of consideration.

The seller should not blindly apply the rate to whichever figure appears as the “total invoice value”.

A proper tax working should identify the amount on which TCS is required under the applicable law.

This is particularly important where the invoice includes:

GST;

Service charges;

Foreign currency components;

Airline charges;

Hotel charges;

Commission;

Other recoveries.

27. Foreign Currency Packages

Many overseas tour packages are quoted in:

USD;

EUR;

GBP;

AED;

SGD;

AUD.

The tour operator should ensure that the taxable consideration for TCS purposes is appropriately converted and recorded in Indian rupees in accordance with the applicable rules.

The accounting system should maintain:

Foreign currency amount;

Exchange rate;

INR equivalent;

TCS;

Invoice value.

28. Group Tours

Suppose 20 people purchase a group tour.

The operator should determine:

Who is the buyer;

Who is making the payment;

Whose PAN is being reported;

Whether the invoice is issued individually or collectively;

How TCS credit should be allocated.

This is particularly important because TCS credit ultimately needs to reach the correct taxpayer.

29. Family Tour

Suppose a husband purchases a family package for:

Himself;

Wife;

Two children.

The operator should properly identify the buyer/payment party and maintain appropriate customer records.

The fact that multiple family members travel does not automatically mean that the package value should be split among all travellers for TCS purposes.

The transaction structure and buyer should be examined.

30. Corporate Travel

Businesses may also purchase overseas tour packages for:

Employees;

Directors;

Business meetings;

Incentive tours;

Conferences;

Corporate events.

The company should maintain:

PAN;

Invoice;

Payment details;

Travel purpose;

TCS details.

The tax treatment can differ depending on the exact nature of the transaction.

31. What If a Customer Cancels the Tour?

Cancellation cases can create practical TCS issues.

The operator should maintain:

Original invoice;

TCS collected;

Cancellation note;

Refund amount;

Adjustment;

Relevant TCS reporting.

Where TCS has already been collected and subsequently refunded/adjusted, the operator should ensure that the accounting and TCS reporting consequences are correctly handled.

32. Refund of TCS

TCS collected is generally reflected as tax credit for the customer.

Therefore, where a transaction is cancelled or reversed, the operator should not simply delete the TCS ledger entry without considering:

Whether TCS was already deposited;

Whether TCS statement was filed;

Whether correction is required;

Whether customer credit was reported.

Proper reconciliation is essential.

33. Compliance for Tour Operators

A professional compliance checklist should include:

Customer onboarding

☐ PAN captured

☐ Name verified

☐ Contact details recorded

Invoice

☐ Package identified

☐ Taxable consideration identified

☐ TCS rate applied correctly

☐ TCS separately disclosed

Accounting

☐ TCS payable ledger maintained

☐ Customer ledger reconciled

☐ TCS deposit reconciled

Return

☐ TCS statement prepared

☐ PAN details checked

☐ Challan reconciled

☐ Customer credit verified

34. Common Mistakes Under FY 2026-27

Mistake 1 — Applying 5% up to ₹10 lakh

Wrong for FY 2026-27.

The rate is now 2%.

Mistake 2 — Applying 20% above ₹10 lakh

Wrong for overseas tour packages in FY 2026-27.

The 20% higher-rate mechanism has been removed for this category.

Mistake 3 — Thinking ₹10 lakh means “No TCS Below ₹10 lakh”

This was never the correct interpretation of the overseas tour package rule.

Under the earlier regime, 5% applied to the package amount up to the threshold.

For FY 2026-27, TCS is 2% irrespective of amount.

Mistake 4 — Confusing LRS with Tour Packages

Bank remittance under LRS and purchase of an overseas tour package are separate categories.

Mistake 5 — Ignoring Transaction Date

A package booked around the year-end should be examined carefully.

The applicable rate depends on the relevant date and the law applicable to the transaction.

Mistake 6 — Using Old Software Configuration

Tour operators should update accounting/ERP systems for FY 2026-27.

Old configurations may still contain:

5% / 20%

and could automatically calculate incorrect TCS.

35. Year-End Transition: March 2026 vs April 2026

This is particularly important for tour operators.

Transaction before 1 April 2026

The earlier FY 2025-26 provisions may apply.

Transaction from 1 April 2026

The FY 2026-27 framework applies.

The Finance Bill 2026 expressly states that the revised overseas tour package TCS treatment takes effect from 1 April 2026.

Therefore, businesses should identify transactions around:

31 March 2026 / 1 April 2026

carefully.

36. Practical FY 2026-27 Examples

Package Value TCS @ 2%

₹1,00,000 ₹2,000

₹2,50,000 ₹5,000

₹5,00,000 ₹10,000

₹7,50,000 ₹15,000

₹10,00,000 ₹20,000

₹15,00,000 ₹30,000

₹25,00,000 ₹50,000

₹50,00,000 ₹1,00,000

The calculation is simply:

Eligible package amount × 2%

37. Old vs New Example — ₹15 Lakh Package

This example clearly demonstrates why the change matters.

Earlier framework

₹10 lakh × 5% = ₹50,000

₹5 lakh × 20% = ₹1,00,000

Total TCS:

₹1,50,000

FY 2026-27

₹15 lakh × 2%

= ₹30,000

Difference

₹1,50,000 − ₹30,000

= ₹1,20,000

Thus, the FY 2026-27 amendment significantly reduces the upfront TCS collection on higher-value overseas tour packages.

38. Old vs New Example — ₹25 Lakh Package

Earlier framework

₹10 lakh × 5%

= ₹50,000

₹15 lakh × 20%

= ₹3,00,000

Total:

₹3,50,000

FY 2026-27

₹25 lakh × 2%

= ₹50,000

This demonstrates the substantial impact of the amendment for premium/high-value international tour packages.

39. Impact on Tour Operators

The new rate can simplify compliance significantly.

Earlier

The operator needed to:

Track ₹10 lakh threshold;

Calculate 5% portion;

Calculate 20% portion;

Monitor cumulative amounts;

Reconcile customer purchases.

FY 2026-27

The basic calculation becomes:

Eligible package value × 2%

This makes billing and accounting substantially simpler.

40. Impact on Customers

For travellers, the amendment generally means:

Lower TCS on high-value tour packages;

Simpler calculation;

No 20% slab above ₹10 lakh;

Easier invoice verification;

Lower upfront cash blockage.

However, customers should remember:

TCS is tax credit, not a discount on the tour package.

41. Is 2% TCS a Final Tax?

No.

TCS is generally a collection mechanism.

The amount collected is generally available as tax credit to the person from whom it has been collected, subject to the applicable rules and correct reporting.

Therefore, if:

Income-tax liability = ₹2,00,000

TCS credit = ₹30,000

then the eligible TCS credit can generally be adjusted against the final tax liability.

42. What Should Customers Check?

After purchasing an overseas tour package, customers should retain:

Invoice;

Payment receipt;

TCS amount;

PAN details;

TCS certificate, where applicable;

Relevant tax statement.

At return-filing time, the customer should reconcile the TCS credit with the information available in the income-tax system.

43. What Should Tour Operators Do Before FY 2026-27 Filing?

Tour operators should update:

Accounting software

Change:

5% / 20%

to:

2%

for FY 2026-27 eligible overseas tour programme packages.

Invoice templates

Update the TCS description.

ERP

Update tax codes.

Customer communication

Explain the revised rate.

TCS return setup

Ensure the correct transaction/category codes and statutory references are used.

44. Quick FAQ

Q1. Is TCS on overseas tour packages 5% in FY 2026-27?

No.

From 1 April 2026, the applicable rate is 2%.

Q2. Is 20% TCS applicable above ₹10 lakh?

No, not for overseas tour programme packages under the FY 2026-27 revised framework.

The higher-rate threshold has been removed.

Q3. Is there any minimum threshold for overseas tour package TCS?

For FY 2026-27, the package TCS is 2% irrespective of the amount under the revised provision.

Q4. Who collects the TCS?

The seller of the overseas tour programme package.

Q5. Is TCS applicable to every foreign travel expense?

No. The nature of the transaction must first be examined.

Q6. Is LRS TCS the same as tour package TCS?

No. They are separate categories.

Q7. Can the customer claim TCS credit?

Generally, yes, subject to correct reporting and applicable tax-credit rules.

Q8. When did the new 2% rate become effective?

1 April 2026.

45. Final Compliance Checklist for FY 2026-27

For Tour Operators

☑ Identify whether the transaction is an overseas tour programme package

☑ Capture customer PAN/details correctly

☑ Apply 2% TCS for FY 2026-27 eligible packages

☑ Do not apply the old 5%/20% structure

☑ Update accounting software

☑ Update invoice formats

☑ Maintain TCS payable ledger

☑ Deposit TCS within the prescribed timeline

☑ File the applicable TCS statement

☑ Reconcile TCS with customer records

☑ Issue/enable appropriate TCS reporting/certificate

For Customers

☑ Check invoice

☑ Check PAN

☑ Check TCS amount

☑ Preserve payment proof

☑ Verify TCS credit in tax records

☑ Claim eligible credit while filing ITR

Tour operators in Himachal also need state tourism registration and pay GST at 5% on domestic packages; see our guide for Kullu-Manali travel, taxi and adventure operators.

Conclusion

TCS on overseas tour programme packages has undergone an important change for FY 2026-27.

The old structure of:

5% up to ₹10 lakh + 20% above ₹10 lakh

belongs to the earlier framework, including FY 2025-26. The Income-tax Department’s published rate information reflects that earlier structure.

For FY 2026-27, from 1 April 2026, the Finance Bill 2026 provides a much simpler rule:

TCS on overseas tour programme packages = 2%

The ₹10 lakh threshold for the higher 20% rate has been removed, and the 2% rate applies irrespective of the amount.

Therefore, a ₹5 lakh package, ₹10 lakh package, ₹15 lakh package or ₹50 lakh package would, subject to the transaction qualifying as an overseas tour programme package, be subject to the prescribed 2% TCS rate under the FY 2026-27 framework.

The key compliance message for tour operators is simple:

Do not carry forward the old 5%/20% TCS configuration into FY 2026-27. Update your accounting software, invoice formats and TCS compliance process from 1 April 2026.