US passes 1% levy on foreign remittance tax: How will it impact Indians?
It targets international money transfers made by non-U.S. citizens, including green card holders and temporary visa workers like those on H-1B or H-2A visas. The proposed levy will not be applicable to U.S. citizens.
India stands as the world's top remittance recipient. Other major recipients include Mexico, China, the Philippines, France, Pakistan and Bangladesh.
'The proposed U.S. tax on remittances sent abroad by non-citizens is raising alarm in India, which stands to lose billions in annual foreign currency inflows if the plan becomes law,' the Global Trade Research Initiative (GTRI) said.
GTRI said that the loss would tighten the supply of U.S. dollars in India's foreign exchange market, putting modest depreciation pressure on the rupee.
In a relief to Non-Resident Indians (NRI), the tax rate was originally set at 5%, but was reduced to 1% in the final version of the Bill.
The Bill also exempts remittances made from 'an account held in or by a financial institution' and those 'funded with a debit card or a credit card issued in the United States'.
How does it impact India?
Reserve Bank of India data shows the U.S. is the largest source of remittances to India, accounting for 27.7% or $32.9 billion of the remittances that flowed into the country in 2023-24.
In States like Kerala, Uttar Pradesh, and Bihar, millions of families rely on remittances to cover essential expenses like education, healthcare, and housing.
'A tax on remittances would certainly dent the remittances coming into India,' a government official told The Hindu. 'But the government has not yet made an assessment of what that dent will be.'
The official also added that India has also not yet taken a call on whether to approach the U.S. for some relief in the matter or not.
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