US to levy 1% remittance tax: What it means for NRIs and students

Business Standard

14 hours ago

The US Senate on Tuesday passed President Donald Trump's 'One Big Beautiful Bill Act', bringing with it a new tax on overseas money transfers by non-citizens. The legislation, which takes effect on July 4, 2025, introduces a 1 per cent levy on remittances made through cash, money orders, or cashier's cheques.
The rule will apply to anyone who isn't a US citizen—including Green Card holders, people on temporary visas such as H-1B or H-2A and foreign students.
'For example, if you send $1,160—or around ₹100,000—to your parents in India, you may have to pay ₹1,000 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.
In a relief for Indians, the tax rate was originally set at 5 per cent, but was reduced to 1 per cent in the final version of the Bill.
Why it matters to India?
Remittances play a key role in India's foreign income. According to the World Bank, India received $129 Billion in international remittances in 2024—the highest in the world. Mexico was second with just over $68 Billion. Nearly 28 per cent of India's remittance inflows in 2023-24 came from the United States alone.
Several Indian states, including Kerala, Uttar Pradesh, and Bihar, rely heavily on these funds for household income.
But there's been a recent shift in the pattern, particularly when it comes to money sent by students abroad.
Remittances from students on the decline
Funds sent by resident Indians under the Reserve Bank of India's Liberalised Remittance Scheme (LRS) fell 6.84 per cent to $29.56 Billion in 2024-25, down from $31.74 Billion the previous year.
The steepest drop was seen in money remitted for education abroad. According to the RBI, these remittances fell 16 per cent—from $3.48 Billion to $2.92 Billion.
'Tighter work authorisation policies and recent visa rule changes in the United States have significantly disrupted traditional patterns of student mobility, with a direct impact on remittance flows,' Prof Venkataramanan, pro vice-chancellor at FLAME University told Business Standard.
He added, 'Canada's move to cap study permits and require provincial attestation letters, alongside stricter financial documentation, has raised the entry threshold for students. The United States has paused visa interviews and announced aggressive visa revocations targeting certain nationalities. These factors are making families rethink the scale of investment in foreign education.'
Families are more cautious about education loans and remittances
Prashant A Bhonsle, founder and CEO of Kuhoo Finance, said the uncertainty around post-study work options is a growing concern for parents.
'Students and parents are questioning the return on investment when career security abroad becomes uncertain,' he told Business Standard.
Visa processing delays are adding another layer of difficulty. 'For students still in India, delayed visa approvals mean postponed tuition and living expense payments. For those already abroad, uncertainty about their future makes them hesitant to send money back home,' Bhonsle explained.
According to Pavan Kavad, managing director at Prithvi Exchange, recent visa policy changes in the UK and Australia are also linked to the remittance dip.
'Developed economies are facing employment challenges amid recession fears. Families are waiting for more clarity before transferring large sums abroad,' he said.
Indian institutions and banks adjust to the shift
Venkataramanan pointed out that some Indian banks and financial institutions are already adapting.
'Public and private banks are seeing more staggered disbursals of education loans instead of upfront payments. Families are aligning payments with semester confirmations, often waiting for visa approvals before committing,' he said.
NBFCs and fintech firms, he added, are also reporting a drop in high-value remittances.
Meanwhile, Bhonsle noted that tighter financial documentation rules abroad have made it harder for families to demonstrate the funds required for visa approvals. 'This has created larger upfront commitments that not all families can meet easily,' he said.
Trust in the visa system is faltering
Beyond the rules themselves, trust appears to be the larger issue.
'In the US, social media scrutiny, visa delays, and the new remittance tax all contribute to the sense that studying abroad is more financially risky,' Kavad said.
That perception is prompting Indian families to either delay their plans or look at domestic alternatives.
'The slowdown has led financial institutions to take a more cautious and adaptive approach,' said Venkataramanan. 'We may be in a transitional phase rather than a terminal decline. If visa clarity improves and financial processes become more predictable, the flows could recover. Until then, families will continue to explore more stable options.'