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Budget 2026 on TDS, TCS, LRS and transition to the New Income Tax Act
Listen to our podcast about Union Budget 2026 direct tax announcements, covering TDS and TCS changes, LRS updates, compliance simplification and the new Income Tax Act.
In this episode of the Budget Insights series on EY India Insights, Jayesh Sanghvi, Partner, Tax, EY India, highlights and explains some of the most important direct tax announcements made in the Union Budget 2026: From changes in TDS and TCS rules to adjustments under the Liberalised Remittance Scheme, and from simplified compliance procedures to the transition to the new Income Tax Act taking effect on 1 April 2026.
Key takeaways
Lower 2% TCS on medical and education remittances (from 5%) and on tour packages (from 5% and 20%), eases overseas payment cash flow.
Simpler TDS and TCS processes on buying property from non‑residents ease application and payment processes for individual taxpayers.
For the new Income Tax Act, backend technology architecture and compliance details will have to be made ready.
After rationalizing personal and corporate income tax rates, the focus can be on revenue from the wider tax base.
More compliance and tax administration changes can be expected.
After having addressed transformation in tax laws and tax rates, the government is likely to focus on better compliance and tax administrative reforms.
Jayesh Sanghvi
Partner, Tax, EY India
For your convenience, a full text transcript of this podcast is available on the link below:
Pallavi
Welcome to a new post-Budget episode of the Budget Insights series on EY India Insights. In this episode, we discuss the key direct tax announcements in the Union Budget, including changes related to income tax, TDS, TCS, and compliance requirements, along with the introduction of the new Income Tax Act effective 1 April 2026. Joining us is Jayesh Sanghvi, Partner, Tax, EY India, who shares his insights on what these changes mean for individual taxpayers and businesses.
Hi Jayesh, Thank you for joining us for this episode.
Jayesh Sanghvi
Thank you
Pallavi
Jayesh, to begin with, what were the major direct tax announcements in Budget 2026, especially around income tax, TDS/TCS rules, and compliance changes and how are they expected to impact individual taxpayers and businesses?
Jayesh Sanghvi
There was an agenda of the government to actually rationalize the TDS (tax deducted at source) and TCS (tax collected at source) rules and this was asked by the industry as well as taxpayers. Currently, TCS applies quite heavily on certain transactions when remittances are made by individuals. And that was leading to significant blockage of cash by the individual taxpayers because TCS applied at the point in time of evidence. In most of the instances actually, one has to ask for a refund when you are filing a return of income.
So what the government has done, at least on LRS (Liberalised Remittance Scheme) payments, which are relating to medical treatment and education, they have reduced the TCS rate from 5% to 2%. And for all the rest of the expenditures, rest of the remittances, it continues to be 20%. But medical and education constitute a significant part of payments which most of the Indians make under LRS for kids going overseas. So, that is one. Second, on the tour programs overseas, tour program packages also the rate was 5% up to INR10 lakh and 20% above 10 lakh. And that also has been rationalized to a flat rate of 2%. So, this obviously will significantly save on cash flows of individuals making remittances.
The other interesting factor is that when individuals are purchasing properties from nonresidents, because of the remittances, you have to do a holding and TDS provisions used to apply because payments to nonresidents are subject to TDS. But the simplified process of actually applying and paying for this TDS was not available to the residents. A simplified regime is being introduced even for that. This will simplify a lot of the TDS, TCS applications and the provisions for the individual taxpayers. These are two very interesting changes which are for ease of living for individuals.
Pallavi
Thank you, Jayesh. With the introduction of the new Income Tax Act coming into force from 1 April 2026, what are the key changes in compliance, filings and direct tax procedures that listeners should be aware of?
Jayesh Sanghvi
The compliance changes are not there in terms of timelines and everything, except for one case where they have extended by a month the return filing deadline for individuals not subject to audit and have business income. They will be required to now file by 31 August instead of July. Besides that, the compliance requirements continue to remain the same.
But what is expected now is that the law has been simplified significantly, therefore, the law is very readable. It has been put in a very reader and user friendly language. The language has been completely decluttered from typical legal language. But besides this, the government is now going to actually release the rules and the forms under the new Act.
Things will have to be undertaken under these new rules and forms. And it is expected, which is also what the government mentioned, that these new rules and forms will be very simple and will be made very user friendly for the sake of compliance. We hope to now see the new rules and all the things being released in the public domain for comments and inputs. Obviously, technology architecture at the backend will also have to be geared up from the government side. And obviously from the Indian compliance standpoint and all the taxpayers will also have to gear up for that. But we expect a lot more simplification in terms of how the filings have to be done from now going forward.
Pallavi
Thank you, Jayesh. Lastly, how do the direct tax measures in this Budget, such as adjustments to TDS/TCS, return revision timelines, and other simplifications, reflect the government’s broader strategy on tax fairness, compliance and revenue growth?
Jayesh Sanghvi
One of the things is that this Budget, if you look at it, is not a Budget; a lot of things have already got done. We had the GST rationalization done just before that. We had the new Income Tax Act, which was released, which obviously simplifies the entire language. And the rates of tax, both on personal income tax and corporate income tax over a period of time have been rationalized. For this Budget, there was not an expectation that it will be a very transformative big bang Budget, because a lot of things have been done in terms of simplification.
The real thing is how do you expand on rationalized personal income tax rates and rationalized corporate income tax rate? How do we actually get more revenue collection because of the base increase? What has been seen typically is that over time, the transmission of the rate and the effect of that on expansion as well as increase in revenues take time. This year we have seen a dip in revenue growth. But that will be made up only in the next few years because the benefits will of the expanded base of taxpayers will likely happen over a period of time.
The other very interesting thing is that, having done most of the stuff on transforming tax laws as well as tax rates, the government will pivot more towards better compliance and tax administration. So, the tax administrative reforms is something which will kick in now and which is what the government is expected to do. They will try to make the whole administration user friendly. We have seen a lot of those initial instances of the government trying to nudge taxpayers to rectify their unintentionally trying to make mistakes in their filings or if they have claimed something wrong.
So, we will see a different face of the government now when the regulator tries to interact and ensure that the taxpayer, in the whole process, they actually comply and also pay their taxes and report income.
Pallavi
That bring us to the end of this episode. Thank you, Jayesh, for joining us and sharing the insights on the latest direct tax measures and their broader implications.
Jayesh Sanghvi
Thanks Pallavi, thanks for the time.
Pallavi
And thank you to all our listeners for joining in to this post-Budget episode of Budget Insight series on EY India Insights. Stay tuned for more expert conversations on key budget developments.
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