Trump administration proposes 5% tax on remittances from US to India, potentially costing Indian expatriates over $1.6 billion annually and affecting millions who depend on these funds for their livelihoods.
At a Glance
- The proposed 5% tax on international money transfers by non-citizens would significantly impact India, which receives $32.9 billion annually from the US
- This tax is part of a broader Republican bill to make the 2017 Tax Cuts and Jobs Act permanent while funding tax breaks and border security
- Financial institutions would collect the tax at the transaction point, affecting all legitimate transfer channels including traditional banks and NRE/NRO accounts
- The bill is expected to pass the House by May 26, 2025, and potentially become law by July 4th
- Experts warn the tax could negatively impact India’s economy, affecting foreign reserves and investment incentives
Proposed Tax Would Affect Millions of Indian Expatriates
A new Republican tax proposal introduced on May 12, 2025, includes a 5% excise tax on remittance transfers made by non-citizens from the United States. This tax would significantly impact the approximately 40 million non-citizens in the US, with particular consequences for Indian expatriates who send substantial sums home each year. The proposal, which has received President Trump’s support, would not apply to US citizens but would affect all Non-Resident Indians (NRIs) using any money transfer service to send funds to India.
India has been the largest recipient of global remittances since 2008, with its share rising to approximately 14% in 2024. In the fiscal year 2023-24, the US accounted for 27.7% of India’s total remittances, translating to approximately $32.9 billion. A 5% tax on this amount would result in about $1.64 billion in additional costs for Indian expatriates sending money home. This represents a significant financial burden for families who depend on these funds for daily expenses, education, healthcare, and property investments.
Broader Impact on US Tax Policy and Border Security
The remittance tax is part of a broader bill aimed at making the 2017 Tax Cuts and Jobs Act permanent, increasing the standard deduction, and extending the child tax credit. The legislation has garnered strong support from President Donald Trump, who responded with an enthusiastic “GREAT” when asked about the proposal. The bill’s proponents argue that the tax will help fund both tax breaks for American citizens and enhanced border security measures, positioning it as a dual-purpose revenue generator.
Under the proposed legislation, financial institutions would be responsible for collecting the 5% tax at the transaction point. This would affect all legitimate transfer channels, including wire transfers, money service businesses, and traditional banking institutions. The bill is expected to pass the House by May 26, 2025, and could potentially become law by July 4th if it successfully navigates the legislative process in both chambers of Congress.
Economic Consequences for India
Financial experts have expressed concern about the potential macroeconomic impact of the tax on India’s economy. Akshat Shrivastava, CEO of The Wisdom Hatch Fund, warned that the tax could discourage NRIs from investing in Indian assets and harm India’s economy more broadly. The tax would effectively reduce the amount of money NRIs can send home, affecting family support, property purchases, and education expenses for dependents in India.
“It will get harder for NRIs to buy property & stocks in India,” said Akshat Shrivastava.
The Reserve Bank of India has noted that remittance transaction costs, which include fees and exchange rate conversion, have significant socio-economic impacts. The proposed tax would add an additional layer of expense, effectively taking ₹5,000 from every ₹1 lakh sent from the US to India. This increase comes at a time when global policy has focused on reducing remittance costs for over a decade, recognizing their importance to recipient economies.
Financial Planning Implications for NRIs
Financial advisors are recommending that NRIs make large remittances before July if possible to avoid the potential tax. They are also suggesting that expatriates reconsider their remittance strategies and explore alternative methods of supporting their families in India. If the bill becomes law, NRIs will need to reassess their financial and tax planning, budgeting for the additional 5% expense when sending money home.
“Point being: every country is trying to protect its outflow of capital,” added Shrivastava.
The proposal comes amid a notable shift in India’s remittance sources from Gulf countries to advanced economies like the US, UK, Singapore, Canada, and Australia. The timing is particularly significant as it could potentially reverse some of the gains India has made in building its foreign reserves through remittances. Compliance with existing US reporting requirements for transactions over $10,000 will continue alongside the new tax, potentially creating additional administrative burdens for financial institutions and NRIs alike.
