Budget 2026 and the LRS: The TCS Cut to 2%, the Rs 10 Lakh Threshold, and Why NRIs Are Outside the Scheme but Their Families Are Not

On 1 February 2026, the Finance Minister cut the TCS on outward foreign remittances to a flat 2%, down from the 5% that had applied to most LRS transfers and the punishing 20% that hit overseas tour packages above Rs 7 lakh. If you are an NRI reading this and reaching for your remittance history to work out what you save, stop. You were never paying it. The Liberalised Remittance Scheme, and the tax collected at source that rides on it, apply only to residents of India. The people this Budget actually relieves are your parents in Pune wiring your second-semester tuition, your father topping up your UK rent, your sister gifting into your account for a house deposit. They have been quietly funding the government's float for two and a half years, and most of them never knew they could get it back.

The 30-second answer: Budget 2026 cut TCS under Section 206C(1G) to a flat 2% from 1 April 2026, replacing the 5% on most LRS remittances and the 20% on overseas tour packages above Rs 7 lakh. The annual threshold stays at Rs 10 lakh, so the first Rs 10 lakh remitted in a financial year carries no TCS. Education funded by a loan from a specified institution stays at 0%; self-funded education and medical remittances are 0% up to Rs 10 lakh, 2% above. Critically, the LRS and TCS apply only to residents, not NRIs. You as an NRI pay no TCS moving your own NRE or NRO money. Your resident family pays it when they fund you, and they reclaim it in full as a tax credit on their Indian return.

This guide is about a thing you cannot fix from where you sit, only help your family fix. It covers what the LRS actually is and why you are not in it, what changed in Budget 2025 and again in Budget 2026, who gets hit and for how much, the exact mechanics of reclaiming TCS, and the practical playbook for routing cross-border family money so that nobody parks lakhs with the tax department for a year for no reason. If you want the broader picture of what this Budget did across the board, the Budget 2026 round-up for NRIs sits alongside this one.

The LRS is a resident's scheme, and you walked out of it the day you became an NRI

The Liberalised Remittance Scheme lets a resident individual remit up to USD 250,000 per financial year out of India for permitted purposes: education, travel, medical treatment, maintenance of relatives, investment in foreign shares and property, gifts. It is the legal channel through which money leaves India in retail quantities. Section 206C(1G) of the Income Tax Act bolts a tax-collected-at-source onto it: the authorised dealer, almost always the bank, collects a slice of the remittance and deposits it against the remitter's PAN before the money leaves.

The single fact that reframes this entire Budget for you: the LRS is not available to non-residents, and Section 206C(1G) does not apply to them. The day your residential status flipped to non-resident under the Income Tax Act, you stopped being a person who remits under LRS. Your money out of India now moves through a different door entirely: from your NRE account it is freely repatriable with no cap and no TCS, and from your NRO account up to USD 1 million per financial year with Form 15CA and 15CB, again with no TCS under 206C(1G). The government even formally notified that 206C(1G) does not apply to a non-resident visiting India. So every headline about TCS dropping to 2% is, for you personally, news about other people's money.

That does not make it irrelevant. For most NRIs the cross-border money flow is not one-directional. You send money home, yes, but money also flows the other way: parents paying your fees while you study, family gifting into your accounts, a spouse still resident in India remitting to a joint goal abroad. Every one of those outbound flows is a resident remitting under LRS, and every one of them is a TCS event. The Budget 2026 cut is real money for those people, and because most of them treat the deduction as a lost tax rather than a recoverable credit, the bigger saving is not the rate cut at all. It is teaching them to reclaim it.

What actually changed: Budget 2025 set the stage, Budget 2026 cut the rate

Two Budgets did the work, and conflating them is the most common error in the coverage. Get the sequence right.

Budget 2025, effective 1 April 2025, did two things. It raised the TCS-free threshold from Rs 7 lakh to Rs 10 lakh per financial year across LRS purposes, so the first Rs 10 lakh a resident remits in a year now carries no TCS at all. And it took TCS on education funded by a loan from a specified financial institution (the kind that qualifies under Section 80E) down to 0%, removing even the old 0.5% sliver. Self-funded education above Rs 10 lakh still attracted 5% after that Budget, and general LRS remittances above Rs 10 lakh stayed at 5%, while overseas tour packages remained at the harsh 5% up to Rs 7 lakh and 20% above.

Budget 2026, announced 1 February 2026 and effective 1 April 2026, is the rate cut. It collapses the structure to a flat 2% on amounts above the Rs 10 lakh threshold. The 5% on general LRS remittances becomes 2%. The 5% on self-funded education above Rs 10 lakh becomes 2%. The 5% on medical remittances above Rs 10 lakh becomes 2%. And the overseas tour package rate, which was the genuinely painful one at 20%, drops to 2% as well, with the separate minimum threshold on tour packages removed. The Rs 10 lakh annual threshold itself is unchanged. Loan-funded education stays at 0%, regardless of amount, as it has since 2025.

So the post-1-April-2026 picture, for a resident remitting under LRS, is clean enough to commit to memory.

Purpose of remittance	TCS up to Rs 10 lakh/year	TCS above Rs 10 lakh/year
Education, loan from specified institution	0%	0%
Education, self-funded	0%	2%
Medical treatment abroad	0%	2%
Overseas tour package	2% (no minimum threshold)	2%
All other LRS (gifts, investment, maintenance)	0%	2%

Two honest qualifications. First, the threshold is cumulative across all LRS purposes in a financial year, not per transaction and not per purpose. A resident who sends Rs 6 lakh of tuition and Rs 6 lakh of gift in the same year has crossed Rs 10 lakh and the next rupee is taxable, even though neither transfer alone breached it. Banks track this per PAN, but only their own transactions; if the remitter uses two banks, each may under-collect and the shortfall surfaces at return time. Second, these dates are when the rate applies. TCS collected in FY 2025-26 (up to 31 March 2026) was at the old 5% and 20% rates, and that money is reclaimed against FY 2025-26 income in the return filed in 2026. The 2% rate only touches remittances made from 1 April 2026 onward.

The Rs 10 lakh threshold is bigger than the families who needed it most

Here is the part the relief narrative skates over. Raising the threshold from Rs 7 lakh to Rs 10 lakh and cutting the rate to 2% genuinely helps, but it helps least the people who were always going to cross the threshold by a wide margin: families funding full overseas degrees, where annual tuition and living costs run Rs 40 lakh to Rs 70 lakh for the US or UK. For them, Rs 10 lakh of headroom is a rounding error. What changed for them is the rate, from 5% to 2%, and even that is a cash-flow timing question rather than a permanent cost, because it all comes back.

Put real numbers on it. Take Anjali, an NRI doing a master's in the United States, whose father in Bengaluru remits her tuition and living costs himself, out of his savings, because the family chose not to take an education loan. In FY 2026-27 he sends Rs 50,00,000 across the year for her fees and maintenance.

The first Rs 10,00,000 carries no TCS. The remaining Rs 40,00,000 is self-funded education above the threshold, taxed at the new 2%, so the bank collects Rs 80,000 as TCS and deposits it against her father's PAN. Under the old 5% rate that figure would have been Rs 2,00,000. So the rate cut improves his cash flow by Rs 1,20,000 for the year, money that would otherwise have sat with the government until he filed his return.

Now the counterfactual that matters more than the rate. Suppose the family had instead funded the same Rs 50 lakh through an education loan from a specified financial institution. TCS would have been 0% on the entire amount, not just the first Rs 10 lakh. The bank collects nothing, even though the sum is identical. The structure of the funding, not its size, decides the TCS. For a family that can service a loan, the loan route eliminates the cash-flow hit entirely, and the loan interest is deductible under Section 80E for the resident borrower for up to eight years on top. The 2% on self-funding is recoverable, but the loan route means there is nothing to recover in the first place.

And here is the under-appreciated point that makes even the Rs 80,000 less alarming than it looks: Anjali's father gets that Rs 80,000 back. It is not a tax. It is a TCS, a prepayment credited to his PAN. When he files his FY 2026-27 return, the Rs 80,000 is set against his own income tax, and if his salary TDS already covers his liability, the Rs 80,000 is refunded in full. The real cost of self-funding Anjali's degree was never Rs 80,000. It was the time-value of Rs 80,000 sitting idle for roughly a year. Frame it to your parents that way and the panic about TCS evaporates.

You are outside the scheme, so route the money the right way and there is no TCS at all

The cleanest way to avoid TCS on family money is structural: keep the remittance inside the NRI repatriation channels wherever the money is yours to begin with, because those carry no 206C(1G) charge. The confusion, and the accidental TCS, comes from mixing up two completely different flows.

When you move your own money out of India, there is no LRS and no TCS. From your NRE account, repatriation is unlimited and automatic; the funds were already foreign-sourced and post-tax. From your NRO account, you can repatriate up to USD 1 million per financial year after filing Form 15CA (your self-declaration) and obtaining Form 15CB (a chartered accountant's certificate confirming the tax position), and again no TCS applies. The mechanics of choosing between these, and the document trail, are in sending money out of India: NRO versus LRS, which is the companion piece to this one and worth reading if any meaningful sum flows out in your name.

When a resident funds you, that is LRS and TCS territory, and the precise route changes who pays and how much. There are three common patterns, and they are not equivalent.

The first is a resident parent remitting directly to your overseas bank account or to your university abroad. This is a textbook LRS remittance from the parent. If it is for your education and self-funded, it is 0% up to Rs 10 lakh and 2% above; if it is a general transfer or gift, it is 0% up to Rs 10 lakh and 2% above. The TCS lands on the parent's PAN.

The second is a resident parent crediting your NRO account in India as a gift, which you then repatriate yourself. This is the route many families assume sidesteps LRS, and it partly does, but with a hard FEMA limit: gifts from a resident to an NRI's NRO account are capped at USD 250,000 per financial year under the LRS gift entitlement of the resident donor, because the gift itself is the resident's LRS transaction. Above that limit the credit is not permitted. Within it, the gift is tax-free in your hands under Section 56 because a parent is a specified relative, and you then repatriate from the NRO account under your own USD 1 million limit with 15CA and 15CB. Whether TCS applies to the resident's gift credit depends on the bank's reading; some treat a domestic credit to an NRO account as not crossing the LRS TCS trigger, others apply 2% above Rs 10 lakh, so confirm with the specific bank rather than assume.

The third, and the one that is genuinely TCS-free at any size, is the education loan route described above: the loan disbursement to the institution carries 0% TCS regardless of amount. For a large degree this is the structurally cheapest channel on the TCS dimension alone.

Put numbers on the second pattern, because it is where families most often trip. Suppose Anjali's father wants to gift her Rs 30,00,000 toward a flat deposit in the US, not for education. He cannot simply wire it; the resident-to-NRI gift into her NRO account is capped at USD 250,000 for the year, which at roughly Rs 86 to the dollar is about Rs 2.15 crore, so Rs 30 lakh is comfortably within FEMA. On the TCS side, this is a general LRS remittance: the first Rs 10 lakh is TCS-free and the remaining Rs 20 lakh attracts 2%, or Rs 40,000, on his PAN, fully reclaimable on his return. Had this been the FY 2025-26 rate of 5%, it would have been Rs 1,00,000 blocked instead of Rs 40,000. The gift is still tax-free to Anjali either way; the only moving part is the father's recoverable cash-flow cost.

Reclaiming TCS is a four-step exercise the remitter, not the NRI, has to do

This is the section that turns the rate cut from a headline into actual money returned, and it is the resident remitter's job, not yours. Walk your parent through it, because banks deduct TCS efficiently and explain the recovery to almost nobody.

TCS is a prepayment of the remitter's own income tax, mechanically identical to TDS on a salary. The bank that collects it files a quarterly statement, deposits it against the remitter's PAN, and it shows up in two places: Form 26AS under Part VI (details of tax collected at source) and the Annual Information Statement (AIS) on the income tax portal. The remitter should also be able to obtain Form 27D, the TCS certificate, from the bank, which is the documentary proof of the amount collected.

Step one is verification. Before filing, the remitter pulls Form 26AS from the income tax portal (e-file, then View Form 26AS, which redirects to TRACES) and confirms the TCS figure under Part VI matches what the bank actually collected, cross-checked against Form 27D. Mismatches happen, usually because a bank filed against the wrong quarter or a wrong PAN, and they must be fixed with the bank before filing or the credit will not flow.

Step two is reporting it in the return. When the resident files their ITR, the TCS appears, often pre-filled now, in the schedule of taxes paid (TDS/TCS). The remitter confirms it is captured there. This is the single step families miss: they file a return that ignores the TCS entirely and forfeit the credit by default.

Step three is the arithmetic the return does automatically. The TCS is added to the remitter's salary TDS and any advance tax, and the total is set against their computed income tax for the year. If total prepaid tax exceeds the liability, the excess is refunded. For a salaried parent whose employer already deducted the right TDS, the TCS on a remittance is almost always pure excess, so it comes back in full.

Step four is e-verification and the wait. Refunds are processed only after the return is e-verified, and credit typically lands in the bank account in four to five weeks after that. The honest constraint, the one that makes the 2% rate cut matter even though everything is recoverable, is timing: TCS collected on a June remittance is not reclaimed until the return for that financial year is filed the following year, often a wait of twelve to eighteen months for the money to come home. That float is the real cost, and a lower rate shrinks it.

Make this concrete on the loan-versus-self-fund choice. Across a two-year US master's, Anjali's father self-funds Rs 1,00,00,000. TCS over the two years, at 2% on the amount above Rs 10 lakh each year, is roughly Rs 80,000 plus Rs 80,000, Rs 1,60,000 in total, every rupee of which he eventually recovers but which sits with the government for a year or more each tranche. Had he taken a specified-institution education loan, the TCS would have been zero, with nothing to reclaim, nothing parked, and Section 80E interest relief on top. The recoverability is real, but "recoverable after eighteen months" is not the same as "never charged".

Edge cases

The remitter is not a taxpayer, or has income below the filing threshold. If a resident parent's income is below the basic exemption and they were not otherwise required to file, the TCS still gets collected and still sits against their PAN. The only way to get it back is to file a return purely to claim the refund, even with no tax otherwise due. A retired parent with modest pension income remitting to a child abroad must file an ITR to recover the TCS, or it is simply lost to them. This is the most commonly forfeited TCS in the entire system.

TCS on international credit card spends. There was a long scare in 2023 that spending on an international credit card while travelling would attract 20% TCS under LRS. The government excluded credit card spends abroad from LRS for TCS purposes pending a clarification that never tightened, so as things stand, swiping a card overseas does not trigger 206C(1G). Forex cards and bank wires do. A parent visiting an NRI child who pays for things on a credit card abroad is outside this regime; the same parent loading a forex card or wiring money is inside it.

Returning NRIs who become resident again. The moment your status flips back to resident, you re-enter the LRS world. Your subsequent remittances out of India, including to a child still studying abroad or to any foreign investment, become LRS transactions subject to the Rs 10 lakh threshold and the 2% rate. NRIs planning a return should know that the TCS machinery that never touched them as non-residents switches on the year they become resident, including the RNOR transition year, where for most purposes you are treated as resident for FEMA and LRS even while you get tax relief on foreign income. If you are funding a child abroad in the year you move back, that funding is now your LRS remittance.

The threshold is per remitter, so split sources do not multiply it cleanly. A common idea is to have both parents remit Rs 10 lakh each to double the TCS-free headroom. It works in the sense that each PAN has its own Rs 10 lakh threshold, so two genuine remitters do get Rs 20 lakh of combined headroom. But the money must genuinely be each parent's own, routed through each one's account, not one parent's funds laundered through two PANs, which the AIS cross-matching will surface. Used honestly between two earning parents, the two-threshold structure is legitimate planning.

The closing read

The honest read is that Budget 2026 is good news that mostly is not yours to enjoy. As an NRI you sit outside the LRS and outside Section 206C(1G) altogether, so the cut from 5% to 2% does nothing to the money you move out of your own NRE and NRO accounts; that was always TCS-free. The relief is real, but it lands on your resident family, and the single most valuable thing you can do with this guide is forward the reclaim section to whoever in India is funding you, because the rate cut saves a few tens of thousands while the failure to claim the credit at all loses the entire amount.

So for most NRI families the playbook is this. If the flow is large and recurring, such as a full overseas degree, use a specified-institution education loan and pay 0% TCS at any size, which beats self-funding-then-reclaiming on both cash flow and the Section 80E deduction. If the flow is a one-off gift or a general transfer, accept that the first Rs 10 lakh each financial year is free and only 2% is collected above it, all of it recoverable, and make sure the remitter actually files to reclaim it, even when they would not otherwise file. And keep your own money in the NRI channels, where there is no TCS to begin with: NRE out freely, NRO out to USD 1 million with 15CA and 15CB. The exception worth naming is the returning NRI, for whom the entire LRS and TCS apparatus switches on the year of the move, often unexpectedly. If your family money is large, structured, or crosses the RNOR transition, that is the point to involve a chartered accountant rather than rely on a guide, this one included.

Related guides

• Sending money out of India: NRO versus LRS
• Budget 2026: what changed for NRIs
• NRI accounts for students abroad
• Sending money to India
• Capital gains tax for NRIs on Indian shares and mutual funds
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This guide is educational and general in nature. It is not individual tax or FEMA advice. TCS rates, the LRS threshold, and repatriation limits depend on your exact residential status, the purpose of the remittance, and rules that changed on 1 April 2025 and again take effect 1 April 2026, so confirm your specific position with a qualified chartered accountant before remitting or reclaiming.