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

Presenting the Budget in Parliament, the Finance Minister said the government's focus is on making the income tax system simpler and more citizen-friendly.

As part of this effort, she announced that any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax.

She said, "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".

This move is expected to directly benefit accident victims and their families, ensuring that compensation received is not reduced due to tax deductions.

Sitharaman also announced a major reduction in tax collection at source (TCS) on overseas spending. She proposed to reduce the TCS rate on the sale of overseas tour programme packages to 2 per cent.

Currently, the TCS rates stand at 5 per cent and 20 per cent. The Finance Minister 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, the Finance Minister proposed to reduce the TCS rate under the Liberalised Remittance Scheme (LRS) for individuals pursuing education and for medical purposes. The TCS rate for these categories will be lowered from 5 per cent to 2 per cent.

She stated, "I propose to reduce TCS rate for pursuing education and for medical purposes under the Liberalized Remittance Scheme, popularly known as LRS".

This is expected to ease the financial burden on families sending money abroad for education or medical treatment.

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

This proposal aims to provide clarity to businesses and service providers and reduce disputes related to TDS rates.

The Finance Minister also announced a scheme for small taxpayers, under which immunity from prosecution will be provided for non-disclosure of small foreign assets.

She said individuals who fail to disclose non-immovable foreign assets with an aggregate value of less than Rs 20 lakh will be granted immunity from prosecution.

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

Sitharaman further said 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 adequate time to familiarise themselves with the new system. (ANI)