Union Budget 2026: Sending money for studies abroad just got cheaper, LRS education TCS cut to 2%

Studying abroad may not suddenly become “cheap”, but for thousands of Indian families, the upfront cost of funding overseas education is set to ease after Finance Minister Nirmala Sitharaman cut the tax collection at source (TCS) on education remittances under the Liberalised Remittance Scheme (LRS).

In her Union Budget 2026 speech on Sunday, Sitharaman proposed reducing the TCS rate for education, and medical purposes, under LRS from 5% to 2%, offering immediate relief to students and parents who send money abroad for tuition fees, living expenses and mandatory deposits.

“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,” Sitharaman said.

Why does this make studying abroad cheaper?

The key benefit is simple: when families send large sums abroad, banks deduct TCS upfront. Under the Budget proposal, remittances exceeding Rs 10 lakh under LRS will now attract only 2% TCS, down from 5%.

That reduction matters because overseas education often requires students to show proof of funds even before a visa or university enrolment is completed. For example, students heading to countries such as Germany are required to maintain over Rs 12 lakh in a blocked account. Until now, such transfers could trigger a higher TCS cut, increasing the immediate cash burden for families.

With the lowered TCS rate, the same remittance will now be deducted at a smaller level, making foreign education funding smoother and less expensive at the transaction stage.

Why this matters for education loans too

Formal borrowing for education is growing, especially through public sector banks. According to the Government of India, the amount disbursed by public sector banks for educational purposes has increased by around Rs 13,000 crore in the financial year 2023-24 compared to 2019-20.

Even for loan-backed students, lower TCS reduces friction in money transfers and improves affordability during the early phase of relocation, when expenses are typically at their peak.

What is TCS: and is it an “extra tax”?

Tax Collected at Source (TCS) is collected by banks or authorised dealers when an individual sends money overseas, depending on the purpose of remittance under LRS.

Importantly, the TCS collected is not an additional tax. It is adjusted against the individual’s total income tax liability at the time of filing income tax returns, and any excess amount is refunded.

What is the Liberalised Remittance Scheme (LRS)?

The Liberalised Remittance Scheme is a Reserve Bank of India facility that allows Indian residents to remit up to USD 250,000 per financial year abroad for purposes such as education, travel, healthcare, gifts and investments.

Under the Union Budget 2026 proposal, the TCS rate applicable under LRS for education and medical purposes has been reduced from 5% to 2%, improving affordability for families supporting overseas education plans.