Big, Beautiful rollback: New 3.5% tax replaces 5% plan, NRIs eye cheaper transfers to India but tighter rules

The US has cut its proposed excise tax on outward money transfers to 3.5%, down from an earlier 5% plan that had caused widespread concern among Indians living and working in the country, according to an EY advisory update. The change comes as part of Donald Trump’s newly unveiled One Big, Beautiful Bill Act, a sweeping legislative package targeting trade, immigration, and financial flows.

The rollback is thought to come as a “big relief for Indian migrants,” confirming the revised 3.5% rate after what it called Trump’s “5% threat”. 

What this means for Indian remitters:

Immediate savings: On a USD 10,000 remittance to India, the tax drops from USD 500 to USD 350. about ₹12,000 saved per transaction.

According to World Bank data from 2024, India received $129 billion in international remittances, with 28% of that coming from the US. The Global Trade Research Initiative (GTRI) warned that the proposed tax could reduce remittances to India by 10–15%, amounting to a shortfall of $12–18 billion annually.

But there’s a catch

The new bill also ramps up regulatory oversight. Money transfer firms must now report individuals who send more than USD 5,000 in a single day, increasing scrutiny on routine remittances. Tighter KYC rules and compliance filings may delay transfers for some customers.

Who gains, and who watches their back?

• Winners: Indian workers in the service and labour sectors stand to save more of their earnings, while families receiving funds in India may see slightly larger transfers.

• Worriers: Students and parents, depending on tuition payments, could face paperwork bottlenecks. Hawala operators, once favored for speed and discretion, may attract those wary of government tracking—though their cost edge is shrinking.

The proposed tax has also alarmed Indian workers and students alike. Saurabh Arora, Founder and CEO of University Living, told Business Today, "The proposed 5% excise tax on outbound remittances from the US is a policy under consideration that may influence how Indian students manage their personal finances while studying abroad. Many students begin contributing back home, whether by supporting their families or repaying education loans, once they start part-time work or move into full-time roles post-graduation."

"For such students, even a modest change in remittance costs can shape how they plan and prioritise financial decisions. While the policy is still in discussion, it brings attention to the importance of financial preparedness for students navigating life abroad."