A proposed 3.5% tax on outward remittances by non-citizens in the US, if enacted, will impact H-1B and L1 visa holders, green card applicants, international students, and temporary workers, including over 5 million Indian immigrants in the US.

The over two million Indians living in the US comprise one of the highest-earning NRI groups globally. Their remittances are towards family support and bank deposits, in addition to being a major contributor to India’s foreign exchange reserves.

A recent bill passed by the US House of Representatives seeks to impose a 3.5% remittance tax on all foreign money transfers. If the U.S. Senate approves the bill, it will come into effect from January 1, 2026.

If it does, then each time an NRI sends money home, it would be at the cost of a huge tax cut. For instance, if an NRI sends Rs. 1 lakh, only Rs. 96,500 would reach the recipient bank account in India. The remaining Rs. 3,500 will be taken as tax to the US federal government.

World Bank estimates say that in 2023, Indian expatriates sent home a record $119 billion. With remittances playing a crucial part in India’s economy, such steady inflows surpass India’s gross foreign direct investment (FDI). In FY24, the US was the top contributor, accounting for 27.7% of India’s total remittances, which is approximately $33 billion. For Indian senders and their families, the new bill means a direct hit to post-tax returns as remittances generate about Rs. 10,000 crore for the US government from Indian-origin senders alone.

With the bill waiting for Senate approval, NRIs can remit early, making fund transfers before January 1, 2026. They can also watch for exemptions before making the transactions. – Image by freepik – editor@nrifocus.com