NRIs in US may soon have to pay ₹5,000 tax on every ₹1 lakh sent to India

Business Standard

16-05-2025

If you're an NRI living in the United States and regularly send money home to India, a proposed new tax could soon make those transfers more expensive. The Republican-backed draft legislation, referred to as the 'Big Beautiful Bill', introduces a 5 per cent levy on all overseas remittances made by non-citizens.
If passed, the rule could take effect from July 4, 2025, making you liable to pay an extra fee every time you send money abroad—from family support and education to healthcare and investments.
'For example, if you send $1,160—or around ₹100,000—to your parents in India, you may have to pay ₹5,000 more in tax,' said Rajarshi Dasgupta, executive director – tax. 'That money will be collected by the remittance provider—be it Western Union, MoneyGram or a bank—and passed on to the US government every quarter," he told Business Standard.
Who will have to pay the tax
You will be affected if you:
Hold a visa such as H-1B, F-1, or J-1
Have a green card
Are undocumented
Use a remittance provider that is not formally approved by the US Treasury
The only people exempt are verified US citizens or nationals, and only if they use a 'qualified' provider—one that has an official arrangement with the government to confirm your citizenship status.
If you're a citizen but still get taxed by mistake, you'll need a valid Social Security Number (SSN) to claim it back later when you file your returns.
Hardik Mehta, managing committee member, BCAS (Bombay Chartered Accountants' Society), said, 'The proposed development on excise tax on remittances outside the US can be seen as a replica of Indian TCS provisions on LRS remittances.'
However, he pointed out that the mechanics of the levy require careful reading. 'While the tax is to be paid by the remitter, the bill also talks about giving credit of the said tax on the basis of SSN in the US. In that case it would function akin to the concept of advance tax payment,' Mehta said.
India expected to feel the biggest impact
India, which received $125 billion in remittances in 2023, is the world's largest recipient of money from overseas. According to official figures, nearly 28 per cent of this came from the United States.
'With billions in annual remittances and a large share from US-based NRIs, this friction could significantly reduce inflows, impacting foreign exchange reserves and potentially accelerating currency depreciation,' Dasgupta said.
According to India's Ministry of External Affairs, around 4.5 million Indians live in the US—including about 3.2 million persons of Indian origin. Many send money regularly to support parents, cover education and medical expenses, or invest in property in cities like Mumbai, Hyderabad and Kochi.
Dinkar Sharma, company secretary and partner at Jotwani Associates, told Business Standard, 'On paper, this might look like a small surcharge, but in practice, it marks a severe disruption to the trust, intention, and flow of transnational financial support.'
What could change for you
* You'll pay 5% more each time you send money abroad
* You may have fewer choices of remittance providers, especially if they're not 'qualified'
* If you're a US citizen, you'll need to check whether your provider is approved—or risk paying and claiming a refund later
* If you're planning large transfers, you may want to do them before July 2025
'From the NRI perspective, if you're working in the US and planning to return to India eventually, you're effectively earning 5% less on every dollar sent home,' said Dasgupta. 'Remittance habits will need to be restructured, and large or planned transfers should ideally be completed before July.'
He added that careful documentation of transactions will become even more important—not just for tax filings, but also to avoid legal and financial complications later.
How families in India could be affected
For families in smaller cities or rural areas that rely on this money, the new tax could hit hard.
'For families in tier-II and tier-III cities in India that depend on such remittances to cover basic expenses, this is not a trivial reduction—it could mean the difference between continuing education or dropping out, affording medicines or deferring treatment, paying rent or defaulting on EMIs,' said Sharma.
He warned of a broader ripple effect, particularly in sectors like real estate, banking and consumer goods, which are often fuelled by NRI spending.
'Remittances are not speculative capital flows—they are deeply personal acts of economic solidarity that sustain intergenerational aspirations,' Sharma said.
Why experts call the tax unfair
Critics have called the tax regressive, saying it punishes migrants for supporting their families.
'Unlike capital gains or income tax, this levy is applied on post-tax earnings—money that has already been subjected to federal and state taxation in the US,' said Sharma. 'There's no service being offered by the government in exchange. It is, in essence, a pure extractive measure that penalises people for helping their families or investing in their homeland.'
Democrats in Congress have raised objections, saying the Bill could disproportionately harm immigrant communities and low-income families who depend on remittances.
Sharma added, 'The economic rationale is thin; the political overtones are loud. Remittances are not just economic transactions, they are acts of care and responsibility across borders. Taxing them sends the wrong message—not just to immigrants, but to the world.'