Finance Minister Nirmala Sitharaman, while presenting the Union Budget 2026, announced a reduction in the Tax Collected at Source (TCS) rate on education-related remittances under the Liberalised Remittance Scheme (LRS). The TCS rate has been lowered from 5 per cent to 2 per cent, offering meaningful financial relief to students and families funding education and medical expenses abroad.
The proposal is aimed at improving affordability and easing cash flow pressures for households supporting overseas education. Under the revised provision, remittances exceeding ₹10 lakh for education and medical purposes under the LRS will now attract a lower TCS rate of 2 per cent.
“I propose to reduce the TCS rate for pursuing education and medical purposes under the Liberalised Remittance Scheme from 5 per cent to 2 per cent,” Finance Minister Sitharaman said during her Budget speech.
How the TCS Reduction Benefits Students
The move is expected to support students planning to study abroad, particularly in countries where proof of substantial financial backing is mandatory. For instance, students studying in Germany are required to maintain over ₹12 lakh in a blocked account. Previously, such remittances attracted a higher TCS, adding to the upfront financial burden. The reduced rate is likely to improve liquidity for families and make overseas education more accessible.
In the Union Budget 2025, the government had already exempted TCS on education remittances where funds were sourced through education loans from specified financial institutions. The 2026 Budget builds on this by extending relief to a broader category of remittances.
Trends in Education Remittances and Loans
According to Reserve Bank of India (RBI) data, outward remittances for education witnessed a moderation towards the end of 2025. Education-related remittances under the LRS declined to USD 120.94 million in November 2025, representing a 25.92 per cent drop from October and a 54.25 per cent decline from September 2025.
Meanwhile, government data indicates growing reliance on education loans. Public sector banks disbursed approximately ₹13,000 crore more in education loans in FY 2023–24 compared to FY 2019–20, reflecting rising demand for higher education financing.
What Is Tax Collected at Source (TCS)?
Tax Collected at Source (TCS) is a tax collected by banks or authorised dealers on certain overseas remittances, depending on the purpose of the transaction. The applicable rates and thresholds are prescribed under the Liberalised Remittance Scheme of the RBI.
Importantly, TCS is not an additional tax burden. The amount collected is adjusted against the individual’s total income tax liability at the time of filing the income tax return, and any excess is refunded.
Understanding the Liberalised Remittance Scheme (LRS)
The Liberalised Remittance Scheme allows Indian residents to remit up to USD 250,000 per financial year for permissible purposes such as education, travel, healthcare, gifts, and investments abroad.
Under the Union Budget 2026, the TCS rate under the LRS for education and medical remittances has been reduced to 2 per cent from the earlier 5 per cent. Previously, TCS was applicable on remittances exceeding ₹7 lakh under the scheme, a threshold that has since been revised.
Conclusion
The reduction in TCS under the LRS marks a student-friendly measure in Union Budget 2026. By lowering the upfront tax impact on education remittances, the government has taken a step toward easing financial constraints for families and supporting India’s growing population of students pursuing education overseas.
