Sending money to India? New US tax could cost NRIs Rs 2,900 per Rs 83,000 transfer

Sending money back home from the United States may soon become more expensive for immigrants if a proposed 3.5% excise tax on remittances becomes law. The US House of Representatives has passed the “One Big Beautiful Bill,” which includes this provision targeting non-US citizens.

Initially pitched at 5%, the proposed tax will apply on top of existing income taxes and could affect NRIs on H-1B, L-1, F-1 visas, and even Green Card holders. The move has raised concerns within the Indian diaspora, who fear it could significantly increase the cost of supporting families back in India.

The tax, not yet implemented, is part of the broader One Big, Beautiful Bill Act and aims to regulate global money movement as digital transactions rise.

For many, these remittances are more than financial transactions; they are lifelines. The potential impact of this tax is a major concern for those who rely on sending money to their home countries to support loved ones.

India is the largest recipient of remittances globally, receiving approximately $33 billion from the US in the financial year 2023-24, nearly 28% of its total remittances. The proposed tax threatens to decrease these inflows, making it costlier for NRIs to send money home and potentially impacting household incomes and consumption levels in India, according to Reserve Bank of India data. This reduction in remittances could lead to significant economic challenges for many families who depend on these funds for their daily needs.

Analysts caution that the proposed tax could ripple through developing countries dependent on remittances, affecting household spending, small businesses, and national reserves. In India, Mexico, the Philippines, and Nigeria, remittances constitute a significant portion of foreign income. A decrease in remittance inflows could result in broader economic implications, as families might struggle to meet basic needs. The potential reduction in remittances could also affect small businesses that rely on these funds for investment and growth.

For individuals regularly sending money abroad, experts suggest consolidating smaller remittances into larger, less frequent transfers to mitigate the potential tax burden. Exploring digital wallets and peer-to-peer platforms could also offer alternatives, though these avenues are dependent on how the law is eventually structured. Such strategies could help reduce the frequency of transactions subject to the tax, thereby minimizing its impact.

“The plan would impose a 3.5% tax on money sent from the U.S. to other countries, potentially shrinking the amount of support families receive,” said Pavan Kavad, Managing Director of Prithvi Exchange. This proposal underscores increasing scrutiny on digital finance and cross-border payments, with legislations aiming to regulate the complexities of global money flows. The ongoing discussions are a reminder of the evolving landscape of international finance and the need for individuals to adapt accordingly.

As the U.S. Congress deliberates, the immigrant community and financial service providers are preparing for possible changes. “We’ve seen several regulatory changes aimed at digital finance and cross-border payments recently,” said Kavad. “This proposal shows there’s more scrutiny ahead.” 

Financial experts also warn that the tax could challenge the India-US Double Taxation Avoidance Agreement (DTAA), as debates arise over whether it contravenes the non-discrimination clause. Some argue the clause covers only income tax, not excise or transactional levies.

Meanwhile, proponents of the tax view it as a necessary regulation amidst increasing cross-border financial scrutiny. The potential impact on the DTAA remains a point of contention among policymakers, highlighting the complexity of international tax laws.

Deepashree Shetty of BDO India highlights the administrative burden this tax could impose, stating, “Remitters may face enhanced scrutiny, as banks would need to report data like nationality, remittance amounts, and tax paid.” This increased bureaucracy could discourage remittances, potentially leading to a decrease in the financial support that families in India rely upon. The additional paperwork and compliance requirements could deter many from sending money, impacting the flow of funds crucial for family sustenance.