US Remittance Tax: A Hefty New Bill for NRIs Sending Money Home to India
New Delhi, India – Sending money home to India could soon become significantly more expensive for Non-Resident Indians (NRIs) in the United States. A proposed 3.5% remittance tax, already passed by the US House of Representatives on May 22, 2025, looms large. If approved by the US Senate – with a decision expected in June-July 2025 – this new levy could come into effect from January 1, 2026.
This “One, Big, Beautiful Bill” seeks to impose a 3.5% tax on all foreign money transfers made by non-citizens, directly impacting millions of Indian expatriates.
Who Will Be Affected?
The proposed tax targets a broad spectrum of non-citizens, including:
- H-1B visa holders
- L1 visa employees
- Students on F1/J1 visas
- Green card applicants
- Temporary workers
US citizens, however, are exempt from this specific tax if they use qualified remittance service providers.
The Financial Strain on NRIs
For Indian residents in the U.S., the impact is direct and substantial. For every $100 sent home, $3.50 would be siphoned off as tax. This translates to an additional $350 in tax on every $10,000 transferred. These funds are crucial for Indian families, supporting education, healthcare, daily expenses, and investments.
“US-based Indians sent $33 Bn back home in FY24. But from 2026, every dollar may attract an extra 3.5% remittance tax. Non-citizens — H1-B holders, students — may have to pay this,” noted TaxBuddy, an income tax filing platform.
Why This Matters for India
Remittances are a cornerstone of India’s economy, bridging a significant portion of its merchandise trade deficit and consistently surpassing foreign direct investment (FDI). In 2023, Indian expatriates sent a record $119 billion home, with the US accounting for approximately $33 billion (27.7%) in FY24.
- Revenue for the US, Cost for India: The 3.5% tax could generate nearly Rs 10,000 crore for the US government from Indian-origin senders alone, based on estimated remittances of Rs 2.75 lakh crore from the US. For Indian senders and their families, it’s a direct hit to their post-tax returns.
- Threat to Inflows: The tax could deter many from remitting regularly, potentially leading to an estimated $1.16 billion drop in remittance volumes from the U.S. alone.
- Broader Economic Ripple Effect: With a 2x multiplier effect, experts warn this could cost the Indian economy a staggering Rs 19,886 crore in indirect impact, affecting vital sectors like real estate, banking, and retail. States heavily reliant on remittances, such as Kerala, Uttar Pradesh, and Bihar, could feel a severe pinch.
- Potential for Informal Channels: Some experts fear this tax could inadvertently encourage the use of informal channels (like hawala) to circumvent the tax, potentially undermining regulated financial systems.
What Can NRIs Do Now?
As the law is not yet enacted, NRIs have a crucial window to plan ahead:
- Remit Early: Any transfers made before January 1, 2026, will not be subject to this new tax. Those planning large remittances for investments or family needs might consider doing so sooner.
- Monitor Developments: Keep a close eye on the US Senate’s deliberations, expected in June-July 2025. The bill’s fate rests on their approval.
- Watch for Exemptions: It remains unclear if remittances for specific purposes, such as education, medical needs, or salary transfers, will be exempt. More clarity is anticipated after the Senate’s decision.
- Consider Professional Advice: Consulting a cross-border tax advisor can help NRIs understand the full implications and strategize accordingly, ensuring compliance while minimizing financial impact.
If enacted, this tax could fundamentally reshape how Indian families manage their finances across borders, reducing one of India’s most resilient sources of dollar inflow at a time of global economic volatility. Staying informed and proactive is key for the millions of Indian immigrants in the US.