The proposal will burn India’s foreign reserves, decrease foreign exchange inflow, and disrupt non-residents’ existing financial strategies.
On May 22, 2025, the US House of Representatives passed the controversial ‘The One, Big, Beautiful Bill’. The Bill includes a significant provision levying an excise tax on every single dollar of remittance or international money transfer made by non-US citizens. The proposal has inevitably sent shockwaves across immigrant communities, especially, the second-largest migrant community, the Indian diaspora. As per the RBI’s March 2025 report, the US accounted for 28% of India’s total remittances of $118 billion, which amounts to $33 billion in the financial year 2024.
What is the remittance tax?
The Big Beautiful Bill proposes to levy a 3.5% (originally envisaged 5%) excise tax on every outbound remittance made by immigrants. This means, for example, a single transaction of Rs. 1 lakh ($1154.96) transfer will attract Rs. 3,500 (USD 40.42). In the absence of any cap, the new tax will apply to all transfers, whether single or multiple, small or big in amount. If one goes by the RBI’s latest report, the Indian community should prepare to cough up a little over $1 billion in remittance taxes, annually.
Who are the subjects?
Non-US residents having assets or income in the US, including ESOP proceeds, restricted stock units (RSUs), employees holding work permit H1B, H2A, L1 visas, students holding F1 visa, and Green Card holders awaiting US citizenship will be subject to the tax.
The Bill exempts US citizens or nationals, individuals of Indian origin holding US citizenship, provided they use ‘qualified remittance transfer providers’ from the tax ambit. In case of remittances made through non-qualified channels, the tax will apply. However, they are eligible to claim it as a tax refund.
Who gets a tax refund?
The exempted US citizens and nationals can claim back full tax refund, subject to providing a valid Social Security Number or SSN (similar to India’s Aadhaar) and proof of taxes paid. As the new levy is labelled as ‘Excise Tax on Remittances’ and not a tax on income, it is very unlikely to fall within the ambit of Article 2 of the India-US tax treaty. Thus, it may not extend the refund mechanism to non-resident Indians. Also, as of now, there is no clarity whether this additional tax will be available for a tax credit in India.
Effect on Indian households
The proposal will burn India’s foreign reserves, decrease foreign exchange inflow, and disrupt non-residents’ existing financial strategies. Whether a non-resident is supporting aged parents, funding education, healthcare, household consumption, or investing in real estate back in India, they will all feel the pinch. The remittance from the US is a lifeline for thousands of families in the country.
A significant drop in remittances is likely to affect real estate investments in major Indian cities, including Bengaluru, Chennai, Hyderabad, Mumbai, Delhi’s NCR, as well as capital market and gold. The young Indian working professionals will be hit hard, because a large chunk of their salaries go into repaying higher education loans taken out here.
As per a research report, the levy may result in a 10-15% decrease in remittances to India, or a $12-18 billion yearly shortfall.
What should NRIs do?
Indian professionals as a permanent solution may negotiate with their employers the additional 3.5% cost as part of their salary package, or increase the part of the salary paid here, to set off the impact effectively. Since the tax will apply across all legitimate channels, including NRE/NRO accounts and traditional banks backed by increased regulatory supervision and stricter KYC norms, it will be very difficult to bypass the levy. The compliance burden for non-residents will increase manifold.
Indian govt’s reaction
A finance ministry official reportedly told a local daily that the Government is yet to make an impact analysis of the remittance tax. However, a formal word could be expected during the upcoming monsoon session of the Parliament.
