US Lowers Remittance Tax to 3.5% for NRIs, Easing Financial Burdens
In a significant relief for many non-resident Indians (NRIs) in the United States, the tax on remittances has been reduced. The US House of Representatives narrowly approved this change with a vote of 215-214, as part of President Trump’s "One Big Beautiful Bill Act."
The bill introduced a new “excise tax on remittance transfers,” which initially set the tax at 5%, but it has now been lowered to 3.5%. This modification comes after concerns were raised by the Indian community in the US, which contributes greatly to remittances sent back home.
Understanding the New Tax
The new excise tax mandates that legal immigrants in the US will pay a portion of their outgoing remittances to the US Treasury. This is part of a broader legislative package that aims to enhance the financial landscape and support working families while promoting American economic interests.
Potential Impact on India
If implemented, the new 3.5% remittance tax could have far-reaching effects on India. The country currently receives around $25 billion annually from remittances sent from the US. According to the World Bank, 28% of the $129 billion in total remittances to India in 2024 came from the US. Experts at the Global Trade Research Initiative project that this tax could lead to a 10% to 15% decrease in remittances to India, translating to a loss of $12 to $18 billion each year.
Who Will be Affected?
Several groups may feel the impact of this tax if it becomes law:
- Holders of H-1B and F-1 visas
- Permanent residents (Green Card holders)
- Non-residents with US-based income or assets
- Foreign individuals who transfer money after acquiring limited stock units or other US income
Experts Voice Concerns
Indian tax experts have expressed worries about the potential consequences of this tax. Families receiving remittances might see a significant drop in the money they depend on. Additionally, the new tax could dissuade foreigners from keeping their jobs or assets in the US. Compliance with the tax regulations may also become more burdensome for those working in the US, with stricter oversight on money transfer services causing delays.
Lloyd Pinto, a tax partner at Grant Thornton Bharat, noted that for Indians in the US, including those on various visas, this tax will add to any income taxes they have already paid. He anticipates a surge in remittances to India before the tax takes effect on January 1, 2026, along with a potential shift from formal to informal money transfer methods.
Manish Garg from AKM Global warned that India might see a drop in foreign currency inflow, as sending money back home could become costly for NRIs. He pointed out that those employed in the US and Green Card holders will be particularly affected.
Moreover, the bill raises regulatory scrutiny, requiring money transfer firms to report clients who send more than $5,000 in a day. This increased oversight may lead to delays in transfers for some users, as compliance with Know Your Customer (KYC) regulations becomes stricter.
