TCS on overseas tour packages is now a flat 2%: the playbook

If you sell outbound packages, you've spent the last few years explaining to clients why 20% of their trip cost gets deducted before they've even left the country. That conversation is over. From 1 April 2026, Tax Collected at Source (TCS) on overseas tour packages is a flat 2%, on every rupee, no threshold, no slab.

That's the good news. The bad news is the paperwork didn't get any lighter. You still register for a TAN, collect at the time of payment, deposit with the government, file Form 27EQ every quarter, and issue Form 27D to your client. Get any of that wrong and it's your problem, not theirs.

This post is the operator's playbook: what changed, what counts as a "package" for TCS purposes, the exact mechanics of collecting and filing, and a script for the client who still thinks TCS is a fee you're charging them.

What changed, in one table

Until 31 March 2026, overseas tour packages sat under a tiered structure. From 1 April 2026, that's gone, replaced by a flat rate under Section 394(1) of the Income-tax Act 2025, the re-enacted version of the old Section 206C(1G) of the 1961 Act.

Period	Rate structure
Up to 31 March 2025	5% up to ₹7 lakh, 20% above
FY 2025-26 (1 Apr 2025 – 31 Mar 2026)	5% up to ₹10 lakh, 20% above (threshold raised from ₹7L)
From 1 April 2026	Flat 2%, no threshold (Budget 2026)

The arithmetic is the entire pitch. On a ₹10 lakh package, TCS under the old top slab worked out to roughly ₹2 lakh locked up until refund. Under the flat 2% rule, it's ₹20,000: a tenth of the cash-flow hit, for the same trip. It's no surprise outbound trade bodies like OTOAI publicly welcomed the cut after years of lobbying against the 20% slab locking up client working capital.

One catch operators keep missing: the flat 2% applies from the first rupee. There is no ₹7 lakh or ₹10 lakh exemption anymore for tour packages specifically. That threshold only existed under the old slab, and it's gone. A ₹40,000 weekend Dubai package now attracts TCS just as much as a ₹15 lakh European honeymoon.

Careful: don't confuse the tour-package rule with the general LRS (Liberalised Remittance Scheme) threshold. For other LRS purposes (not tour packages), the first ₹10 lakh a person remits abroad in a year is still TCS-free, with 20% above that for general remittances and 2% above that for education/medical. Overseas tour packages are carved out from this and taxed at 2% on every rupee, regardless of how much else the client has remitted that year.

What counts as an "overseas tour programme package"

Not every foreign booking triggers TCS. CBDT Circular 10/2023 defines an overseas tour programme package as one that includes at least two of: travel (ticket), accommodation, and boarding/lodging or similar services. That two-component test is doing a lot of work: it's the line between "you must collect TCS" and "you don't."

• A flight-only booking: no TCS.
• A hotel-only booking: no TCS.
• Flight + hotel, even sold as a simple combo: TCS applies.
• Flight + hotel + sightseeing/transfers: TCS applies.

This is why some agencies quietly unbundle bookings, selling the flight through one invoice and the hotel through another, to dodge collecting TCS. Understand this isn't a grey area you get to interpret generously; the two-component test looks at what was actually sold to the client, not how you chose to invoice it. If you're structuring a package and calling it two separate bookings to avoid TCS, that's the kind of thing that surfaces in a departmental audit years later, with interest.

The operator's mechanics: collect, deposit, file

If you sell overseas tour packages (any turnover, no exemption), you are required to collect TCS, regardless of your annual revenue. There's no small-agency carve-out here, unlike GST's ₹20 lakh registration threshold. Here's the sequence:

1. Get a TAN (Tax Deduction and Collection Account Number) if you don't already have one. You cannot deposit TCS or file Form 27EQ without it.
2. Collect TCS at the time of receipt of payment or debit to the client's account, whichever is earlier. Not at invoicing, not at travel date. It's at the moment money actually changes hands. If a client pays a ₹2 lakh advance today and the balance in six weeks, you collect 2% on each tranche as it comes in, not 2% on the full package value upfront.
3. Deposit the TCS collected with the government within the prescribed timeline (your CA will confirm the exact due date for your filing month; this is standard TDS/TCS deposit machinery and doesn't change with the rate cut).
4. File Form 27EQ quarterly, reporting every TCS transaction for that quarter. This is a return, not optional paperwork. Miss it and you're looking at late fees and interest on top of the tax itself.
5. Issue Form 27D to each client: their TCS certificate, proof that the amount was collected and deposited against their PAN. Clients need this to claim the credit; if you don't issue it, expect a WhatsApp asking where it is at ITR filing time.

For your own filing reference, the tour-package rows sit under Sl. Nos. 8.D(a) and 8.D(b) with collection codes 1088/1089 in the TCS rate chart. Hand this to your CA or accountant if they're mapping old codes to the new Section 394(1) regime.

Careful: the legal citation changed even though the mechanics didn't. Section 206C(1G) of the Income-tax Act 1961 is now Section 394(1) of the Income-tax Act 2025, effective from 1 April 2026. If your invoice templates or SOPs cite "206C(1G)", update the reference. The collection and filing process is the same, but a client's CA googling the old section number may flag it as outdated.

Showing TCS on your quotation

TCS is not your fee. It's tax you're collecting on the government's behalf, and showing it buried inside a lump-sum package price is exactly what causes the "why is your quote so much higher than the other agency's" objection. Break it out.

Example: A Bali package quoted at ₹1,45,000 per person (flights + hotel + transfers, clearly a two-component package). Show it as: Package cost ₹1,45,000 + TCS @2% ₹2,900 = ₹1,47,900 payable. The client pays ₹1,47,900 to you; you remit ₹2,900 to the government against their PAN and issue Form 27D. Their actual trip cost is ₹1,45,000. The ₹2,900 comes back to them as credit or refund when they file their ITR.

Structuring the quote this way is worth doing consistently, whether you're building it by hand or through software that automates GST and TCS invoicing. See a quotation format that actually converts for how to lay out the full breakdown so tax lines don't read as hidden charges.

The client script: TCS is not a fee

You will get this objection every single time a first-time outbound client sees the TCS line: "Why am I paying extra tax to you?" Here's the reframe, and it's true, not a sales trick:

"This isn't money I'm keeping: it's tax the government requires me to collect and deposit against your PAN, the same way TDS gets deducted from your salary. It shows up in your Form 26AS and AIS. When you file your ITR, it's adjusted against whatever tax you owe, or refunded to you directly if you don't owe that much. Think of it as an advance, not an expense. You'll see it come back."

TCS is not a final tax; it's adjustable against liability or refundable on filing ITR: that's the single fact that ends most TCS objections. If a client wants the full mechanics of claiming it back, send them the TCS refund guide written for clients. It's built to be forwarded on WhatsApp.

The competitor who "doesn't charge TCS"

You will lose a quote to an agency whose price is 2% lower because they simply aren't collecting TCS. This happens constantly with smaller or informal operators, and it's tempting to match them. Don't.

Every seller of overseas tour packages must collect TCS regardless of turnover. There's no exemption for being small or new. An agency skipping it isn't offering the client a better deal; it's exposing itself to a demand for the uncollected tax plus interest and penalty whenever it's caught, and it's exposing the client to a mismatch between their booking and their 26AS if the transaction is ever cross-checked. Losing a price-sensitive quote to a non-compliant competitor stings, but undercutting them by skipping TCS yourself is not a trade worth making. The liability lands on you, the collector, not on them.

Bookings straddling the change

If you quoted or booked a package before 1 April 2026 under the old 5%/20% slab, and the client is still paying instalments after that date, the rate that applies is the one in force on the date each payment is actually received, not the date the package was quoted or booked. So a package booked in February 2026 with a final instalment paid in May 2026 pays 5% (or 20%, if it crossed the old ₹10 lakh threshold) on the February payment and 2% on the May payment. Track this per transaction, not per booking, and make sure your accounting software or ledger timestamps each TCS collection against the actual payment date.

TCS and GST on the same invoice, and e-invoicing

TCS and GST are separate compliance obligations that both sit on the same tour package sale, and they're calculated independently. TCS doesn't reduce your GST liability, and GST doesn't affect the TCS base. If you're unsure whether your package should carry 5% GST or 18%, that decision is unrelated to TCS and worth getting right on its own. See 5% or 18%: how to invoice a tour package correctly and keep the GST rate card for 2026 pinned for reference.

One more thing worth flagging as your agency scales: GST e-invoicing becomes mandatory for B2B invoices once your aggregate turnover crosses ₹5 crore in any financial year since 2017-18. That's a GST rule, not a TCS one, but agencies growing into corporate/B2B outbound business often hit both compliance shifts around the same size. It's worth checking with your CA together rather than one at a time.

Common questions

Do I need to collect TCS if my agency's turnover is small?

Yes. Unlike GST registration, there is no turnover exemption for TCS on overseas tour packages. Every seller must collect it regardless of size, as of July 2026.

Is a flight-only or hotel-only booking covered by TCS?

No. Under CBDT's two-component test, a standalone flight or standalone hotel booking is not an "overseas tour programme package" and doesn't attract TCS. It needs at least two of travel, accommodation, or boarding/lodging together.

Can my client get the TCS amount back?

Yes. It's reflected in their Form 26AS and AIS, and is adjustable against their tax liability or refundable when they file their ITR. It is not a fee you keep.

What happens to packages I quoted before April 2026 under the old rates?

The TCS rate is applied on the date payment is actually received or debited, not the date of quotation or booking. Instalments paid before 1 April 2026 attract the old 5%/20% slab; instalments paid on or after that date attract the flat 2%.

What forms do I actually need to file?

A TAN to collect and remit, Form 27EQ filed quarterly to report the collections, and Form 27D issued to each client as their certificate.

Rules and rates here reflect the position as of July 2026; confirm current rates and filing deadlines with your CA before you finalise quotations or file a return.

The short version

• From 1 April 2026, TCS on overseas tour packages is a flat 2% on every rupee, with no ₹7L/₹10L threshold, replacing the old 5%/20% slab.
• Only "packages" (2+ of travel/accommodation/boarding-lodging) attract TCS under the CBDT circular; standalone flights or hotels don't.
• Collect at receipt of payment or debit, whichever is earlier; deposit with the government; file Form 27EQ quarterly; issue Form 27D to the client.
• Every seller must collect TCS regardless of turnover; a competitor not collecting it isn't cheaper, they're exposed.
• Show TCS as a separate line on the quotation, not buried in the package price; it isn't your fee, it's the client's adjustable advance tax.
• Payments straddling 1 April 2026 are taxed at the rate in force on the date each instalment is actually paid, not the booking date.
• The legal basis moved from Section 206C(1G) (1961 Act) to Section 394(1) (2025 Act); update templates that still cite the old section.