Quick Summary
- An overseas tour package carries a flat 2% Tax Collected at Source (TCS) from 1 April 2026, on the full invoice value. It’s a credit against your tax, not an extra cost.
- The rate has changed three times since it was introduced at 5% in 2020: to a 5%/20% split at a ₹7 lakh threshold in 2023, to the same split at a ₹10 lakh threshold in 2025, and to today’s flat 2% in 2026. For you, today’s rate is the simplest and lowest of the four versions: one flat percentage, no slab to work out, and less of your money held up until you file your return.
- A flight or hotel booked on its own, with nothing bundled in, carries no TCS.
- Buying directly from a foreign operator, with no Indian seller in the chain, means the 2% still applies in principle, but practically it is not collected.
- Non-residents with no permanent establishment in India (no office or fixed business base here) don’t pay this TCS at all.
Ritika books a ten-day trip to Southeast Asia for her family of four: flights, hotels, a couple of day tours, through her travel agent. Her package costs ₹4,00,000. The invoice adds a line she has never seen on a travel bill: TCS, ₹8,000.
She asks around. Her agent says it’s a tax she’ll get back when she files her return. A friend who travelled last year says her own invoice showed 5%. A search turns up a well-ranked page quoting 20%.
All three were right once. So why does the government tax this at all, and why has the rate changed three times since 2020? Here is the rate history, with the reasons the government has given.
Why does the government tax foreign tours, and why has the rate changed?
Before this rule, spending on a holiday abroad left no trace in your tax records. If your return does not show enough income to explain that spending, the mismatch is itself a signal: you may have income you have not declared. Each rate change since 2020 has tried to balance two aims: catch spending large enough to flag against declared income, and avoid pushing buyers to skip the Indian seller.
The rule has had four versions:
- 1 October 2020: introduced at a flat 5%, no threshold. The Finance Bill 2020 Memorandum gave its aim as “to widen and deepen the tax net.”
- 1 October 2023: split into 5% up to a ₹7 lakh threshold and 20% above it. A Finance Ministry statement of 28 June 2023 gave the concern: LRS (Liberalised Remittance Scheme) payments were “disproportionately high when compared to the disclosed incomes. So to restrict it high TCS was applied on Large foreign expenses.”
- Budget 2025: same 5%/20% split, threshold raised to ₹10 lakh. Neither the Act nor the Budget materials say why ₹10 lakh.
- 1 April 2026 (Finance Act, 2026): flattened to 2%, no threshold. The Memorandum said the change would address the concern of “shifting of business from domestic tour operators to overseas tour operators.” The Key highlights from Union Budget 2026 | Income tax updates thread covers this cut alongside the other TCS changes.
Put side by side, the two reasons show the trade-off. The 2023 rise aimed to catch spending that did not match declared income. By 2026 the concern was business moving away from Indian sellers, who must collect TCS, while collection by a foreign operator is uncertain (see below).
For example. TCS on Ritika’s ₹4,00,000 package today: 2% of ₹4,00,000 is ₹8,000, the exact figure on her invoice. If she had booked this same trip one year earlier, under the 5%/20% split at the ₹10 lakh threshold, her booking would have sat entirely under the threshold, taxed at 5% flat: ₹20,000, not ₹8,000.
A pricier ₹12,00,000 trip would have cost ₹90,000 under that split (₹50,000 on the first ₹10 lakh at 5%, ₹40,000 on the remaining ₹2 lakh at 20%), against just ₹24,000 today.
Which bookings count as an “overseas tour package”?
Any package counts if it bundles at least two of these: an international travel ticket, hotel accommodation, boarding or lodging, or similar expenditure. It doesn’t matter who sells it to you: a travel agent, an app such as MakeMyTrip or Expedia, or anyone else.
Ritika’s booking bundles a flight and a hotel. Her invoice also carries two day tours and a travel insurance policy from the same agent, but these do not split it into smaller, tax-free pieces. The Act’s definition covers expenses “in relation thereto” to travel or hotel stay, so sightseeing, visa help and insurance bundled into a flight-and-hotel booking stay part of that one package. The 2% applies to the whole invoice.
Does TCS apply if you book a flight or hotel on its own?
No, not if you book just a flight or just a hotel, with nothing else bundled in.
CBDT’s (Central Board of Direct Taxes) Circular 10 of 2023 reads a “tour package” as needing at least two of: an international travel ticket, hotel accommodation, boarding or lodging, or other expenditure of similar nature. A standalone flight, or a standalone hotel, has only one, so it carries no TCS under this test. Neither the circular nor any explanatory material found states why CBDT drew the line at two.
The Income-tax Act, 2025, at section 402(26), defines an “overseas tour programme package” as “any tour package which offers visit to any country or territory outside India and includes expenses for travel or hotel stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.” That wording never requires two or more components. Read literally, a single flight already fits. CBDT’s own circular is narrower than the Act it is meant to be interpreting, and no ruling, by CBDT or any court, has settled which reading governs.
What it could cost you: say Ritika booked flights alone for ₹1,20,000 (illustrative). The circular’s test gives ₹0 of TCS. The Act’s literal wording gives 2%, which is ₹2,400. If a seller charges it anyway, it comes back as a credit when you file, so the difference is timing, not cost.
Buying directly from a foreign operator, with no Indian seller involved: does TCS still apply?
The same 2% applies in principle. Whether it’s ever actually collected is a separate, unresolved question, for the same reason as above: CBDT’s practical guidance is narrower than the Act’s own wording.
Section 394(1) doesn’t exempt a seller with no Indian presence. A foreign tour operator selling directly to you is still a “seller” under the law, so the obligation doesn’t disappear just because they sit outside India.
But CBDT itself has flagged the gap. The same Circular 10 of 2023 that supplies the two-component test above also says “clarity is required as to how TCS will be collected by such overseas operator with no taxable presence in India.” Taxable presence here means an Indian office: without one, there’s no one for the tax department to go after if TCS isn’t collected. No source confirms that CBDT has since set up a collection mechanism for operators with no Indian presence.
What it could cost you: on Ritika’s ₹4,00,000 package, 2% is ₹8,000. If a foreign operator doesn’t collects it, department will not come to know about it and your money doesn’t get blocked.
Do non-residents pay TCS on an overseas tour package?
No, if the buyer is a non-resident with no permanent establishment in India.
The likely logic: a non-resident with no permanent establishment here has little taxable presence in India for the department to trace, and requiring them to file a return here just to claim back a small TCS credit would be a disproportionate burden.
This exemption comes from a notification issued under the 1961 Act. We could not confirm a matching notification under the 2025 Act, so check the current position before relying on it.
If Ritika’s cousin, a non-resident based in the US, joins her booking and pays his own share through the same agent, his share carries no TCS, whether or not he ever sets foot in India, because he has no permanent establishment here.
What this means for you:
- Check what you are buying, not just the price. A standalone flight or hotel carries no TCS; a bundled package carries 2% from the first rupee, whether you book it through an Indian seller or straight from a foreign operator.
- If you are buying directly from a foreign operator’s website, TCS might not be collected.
- TCS is never an extra cost. Whatever gets collected is tax you have already paid, set off when you file your return for that year.