Budget 2026 discussions have once again brought attention to the major tax reforms introduced in recent Union Budgets, particularly those related to Tax Deducted at Source (TDS) and Tax Collected at Source (TCS). Over the past two financial years, the government has implemented several taxpayer-friendly changes aimed at easing compliance, improving liquidity, and reducing upfront tax burdens for individuals and families.

These reforms, covering areas such as house rent payments, foreign remittances for education, and TCS adjustment against salary tax, have significantly simplified tax rules for salaried taxpayers, landlords, and parents funding overseas education.

New TDS Rules on House Rent: A Major Relief

One of the most impactful changes relates to TDS on house rent under Section 194-I of the Income Tax Act. Until FY25, tenants were required to deduct 10% TDS if the annual rent exceeded ₹2.4 lakh. This threshold often led to unnecessary compliance even for modest rental arrangements.

However, the Finance Act, 2025 brought a crucial revision. From FY26 onwards, TDS on house rent is applicable only if the monthly rent exceeds ₹50,000. This condition applies even if the rent crosses this limit for a part of the month.

As a result, the effective TDS-free rent limit has increased from ₹2.4 lakh to ₹6 lakh per year, offering substantial relief to both tenants and landlords. Landlords now receive higher rental income without deductions, while tenants face fewer compliance requirements.

Additionally, under Section 194-IB, the TDS rate for individuals or Hindu Undivided Families (HUFs) not covered under tax audit has been reduced from 5% to 2%, further benefiting property owners.

Simplified TCS Rules for Foreign Education Expenses

Another major reform affects TCS on overseas remittances under Section 206C(1G), which applies to funds sent abroad under the Liberalised Remittance Scheme (LRS).

Earlier, up to FY25, taxpayers enjoyed a TCS exemption on foreign education remittances up to ₹7 lakh. Amounts beyond this limit attracted 5% TCS for self-funded education, while remittances funded through education loans attracted a lower 0.5% TCS.

From FY26, the government has significantly eased these norms:

• Self-funded education remittances up to ₹10 lakh are now fully exempt from TCS

• 5% TCS applies only on the amount exceeding ₹10 lakh

• No TCS is applicable on education loan-funded remittances, regardless of the amount, provided the loan is taken from a recognized financial institution

This change has brought major relief to middle-class families, reducing the financial pressure associated with funding overseas education.

TCS Can Now Be Adjusted Against Salary Tax

Another important benefit for taxpayers is the ability to set off TCS against salary tax liability. Taxpayers can now submit relevant documents to their employers, who can adjust the TCS amount against tax deducted from salary.

Alternatively, taxpayers can also claim the TCS adjustment while:

• Paying advance tax, or

• Filing their Income Tax Return (ITR)

This flexibility ensures that taxpayers do not face cash flow issues due to excess tax collection.

Improved Compliance and Higher Liquidity

According to tax experts, including senior professionals from leading consulting firms, these changes have significantly improved the ease of doing business and taxpayer convenience. Reduced upfront tax deductions have improved liquidity, while simplified thresholds have lowered the compliance burden.

Overall, the TDS and TCS reforms introduced in recent Union Budgets reflect the government’s effort to create a more taxpayer-friendly tax system, especially for salaried individuals, landlords, and families investing in education.

As Budget 2026 approaches, these reforms serve as strong examples of how targeted tax policy changes can provide real, measurable benefits to ordinary taxpayers.