Budget 2026 announces tax relief for accident victims, cuts TCS on foreign travel, education

NEW DELHI: Union Finance Minister Nirmala Sitharaman on Sunday announced a series of tax-related proposals in the Union Budget 2026 aimed at improving ease of living, simplifying compliance, and providing relief to common taxpayers.

Presenting the Budget in Parliament, the Finance Minister said the government’s focus is on making the income tax system simpler and more citizen-friendly. As part of this effort, she announced that any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax.

She said, “Any interest awarded by the Motor Accident Claims Tribunal to a natural person will be exempt from income tax and any TDS from this account will be done away with”. This move is expected to directly benefit accident victims and their families, ensuring that compensation received is not reduced due to tax deductions.

Watch Live: Smt @nsitharaman presents Union Budget 2026–27 in Parliament #ViksitBharatBudget @sansad_tv @PIB_India https://t.co/DieMezvgTp

— Nirmala Sitharaman Office (@nsitharamanoffc) February 1, 2026

Sitharaman also announced a major reduction in tax collection at source (TCS) on overseas spending. She proposed to reduce the TCS rate on the sale of overseas tour programme packages to 2 per cent. Currently, the TCS rates stand at 5 per cent and 20 per cent. The Finance Minister clarified that the reduced rate of 2 per cent will apply without any stipulation of amount, making foreign travel transactions simpler and less burdensome for taxpayers.

In another relief measure, the Finance Minister proposed to reduce the TCS rate under the Liberalised Remittance Scheme (LRS) for individuals pursuing education and for medical purposes. The TCS rate for these categories will be lowered from 5 per cent to 2 per cent.

She stated, “I propose to reduce TCS rate for pursuing education and for medical purposes under the Liberalized Remittance Scheme, popularly known as LRS”. This is expected to ease the financial burden on families sending money abroad for education or medical treatment.

To remove ambiguity in tax deductions, Sitharaman said the supply of manpower services will be specifically brought within the ambit of payment contractors for the purpose of TDS. As a result, TDS on such services will be applicable at the rate of either 1 per cent or 2 per cent. This proposal aims to provide clarity to businesses and service providers and reduce disputes related to TDS rates.

The Finance Minister also announced a scheme for small taxpayers, under which immunity from prosecution will be provided for non-disclosure of small foreign assets. She said individuals who fail to disclose non-immovable foreign assets with an aggregate value of less than Rs 20 lakh will be granted immunity from prosecution.

This exemption will apply retrospectively from October 1, 2024, helping small-value foreign asset holders regularise compliance without fear of legal action.

Sitharaman further said the Income Tax Act, 2025 will come into effect from April 1, 2026. She added that simplified income tax rules and redesigned forms will be notified shortly, giving taxpayers adequate time to familiarise themselves with the new system.

Regional hubs to boost medical tourism

The Finance Minister said that the government will support states in setting up five regional hubs across the country to promote India as a global destination for medical tourism. She said, “To promote India as a medical tourism hub, I propose a scheme to support states to set up 5 regional hubs in the country.”

The minister proposed establishing five regional medical hubs in partnership with the private sector to position India as a global leader in medical value tourism. Key announcements include establishing three new All India Institutes of Ayurveda, upgrading the WHO Global Traditional Medicine Centre in Jamnagar, and launching a loan-linked subsidy scheme for veterinary infrastructure.

These hubs will offer integrated healthcare services, including modern hospital infrastructure, diagnostics, post-treatment care, rehabilitation, and AYUSH systems.

Ayushman Bharat Health Infrastructure Mission aims to transform India’s healthcare landscape. By integrating hospitals, diagnostics, AYUSH (Ayurveda, Yoga, Unani, Siddha, and Homeopathy), and rehabilitation services, the scheme has multiple objectives — Boost employment opportunities in healthcare, diagnostics, and wellness sectors; enhance healthcare infrastructure, including integrated hospitals and diagnostic centers; attract international patients seeking quality, affordable healthcare and wellness services; promote AYUSH services, focusing on preventive and alternative medicine and improve access to rehabilitation care for patients needing post-treatment support.

The Budget also highlighted eco-tourism and nature-based travel. Sitharaman added that the government will develop ecologically sustainable mountain and nature trails across several regions, including the Himalayas and the Western and Eastern Ghats, to boost trekking, hiking, and eco-tourism in the country.

“…We will develop ecologically sustainable mountain trails in Himachal Pradesh, Uttarakhand and Jammu and Kashmir, also in Araku Valley in Eastern Ghats and also Western Ghats. Turtle trails along key nesting sites in Odisha, Karnataka and Kerala will be developed…India has the potential and opportunity to offer world-class trekking and hiking experiences,” she said.

In addition, special trails will be created for wildlife tourism. These include turtle trails along nesting sites in Odisha, Karnataka and Kerala, and bird-watching trails around Pulicat Lake.

The Union Budget placed tourism at the centre of its employment and growth strategy, highlighting its role in job creation, foreign exchange earnings and local economic development. The government outlined a mix of institution-building, skilling, digital documentation and eco-tourism initiatives to strengthen the sector across India.

“The tourism sector has the potential to play a large role in the employment generation, foreign exchange earnings and expanding the local economy,” she said. To strengthen this effort, the government will establish a National Institute of Hospitality by upgrading the National Council for Hotel Management and Catering Technology.

Further, she announced a pilot scheme to train 10,000 tourist guides at 20 iconic destinations, along with plans to create a national digital platform to document India’s important cultural, spiritual and heritage sites.

“I also propose a pilot scheme for upskilling 10,000 guides in 20 iconic tourist sites through a standardised, high-quality, 12-week training course in hybrid mode in collaboration with the Indian Institute of Management… A national destination digital knowledge grid will be established to digitally document all places of significance, cultural, spiritual and heritage,” she further said.

The Union Budget placed strong focus on boosting the tourism sector, with proposals ranging from medical tourism hubs and eco-friendly travel trails to skill development, hospitality training and digital documentation of India’s cultural and heritage destinations. (ANI)