3.5% Excise Tax on transfers: What Trump's bill means for global Indians, Poonam Mirchandani decodes

Time of India

06-06-2025

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President Trump and the Republican Government introduced a new bill 'The One, Big, Beautiful Bill', on May 12th 2025, which was approved by the House of Representatives by a 215-214 vote on May 22nd 2025 and is expected to be placed before the Senate later this month.Amongst the many changes proposed by the Government, one key change is introduction of Excise Tax of 3.5% (originally proposed as 5%) which shall be levied on any remittance amount transferred from United States of America ('Remittance Transfers')This change is applicable for all senders of such Remittance Transfers . The only exception being US Citizens or Nationals, subject to such remittance being undertaken by them through a 'qualified remittance transfer provider'.The Bill introduces parameters for qualified remittance transfer provider, which is an entity who enters into compliance agreement with the government agreeing to verify the status of remitter as citizen or national of US ('verified United States sender')If the sender is an individual, credit shall be available for aforesaid taxes paid subject to the verified United States sender mentioning his/her social security number as well as that of spouse (if sender is married) in return of tax for the taxable yearWhat this means simplistically, is that when any person who does not qualify as a verified United States sender, makes a Remittance Transfer, the remittance transfer provider will deduct a sum of 3.5% on the amount of transfer before completing the transaction.The interesting part is that the Government has also introduced a secondary liability on the remittance transfer provider if they fail to make such deduction and deposit it with the authorities every quarter, they will be liable to pay the unpaid taxes personallyTherefore, every immigrant including Green card holders, immigrants on visas like H1B, L1, L2 etc. all will be impacted by this Remittance Transfer Excise Tax. In fact, even US Citizens if they don't make remittance through a qualified remittance transfer provider will have to pay this taxWhat the bill does not clarify is the definition of 'sender' for the purpose of this proposed Remittance Transfer excise tax.Though the anti-conduit rules have been extended to remittance transfers, there is no clear provisions on whether corporates, entities, who hold accounts in US and make Remittance Transfers will have to pay this taxThe proposed Bill also does not clarify on how inter correspondent banking transfers be treated especially for international investors who are not US citizen or resident or Green Card holders or any other category of resident alien, but own investments through US brokers and US banks.Though industry insiders are of the view that the tax will be only applicable for remitters who are resident in the US at time of transfer, how the qualified remittance transfer provider will distinguish such an international investor will be a key point of deliberation.It will be interesting to see how the law will shape up soon, as Senators work on developing changes to the Bill prior to placing it before the Senate later this month for approvalThe Bill does mention the Effective Date for this new Remittance Transfer Excise Tax as being with respect to transfers made after December 31, 2025. Similarly, tax credits, if available, shall apply to taxable years ending after December 31, 2025 NRIs historically have remitted funds earned in the US either back to India or invest them outside the US. In both scenarios, they will now have to pay 3.5% Remittance Transfer Excise Tax on any amounts which they remit after December 31, 2025This may activate a stream of outflow of money from US accounts by NRIs and other immigrants to their home countries or locations outside US to sidestep trigger of aforesaid tax.We anticipate families initiating planning for historical funds prior to the changes being implemented as well as restructuring their present account holdings outside US.However, post December 31, 2025 this window gets closed especially for individuals who generate regular income in US, who will have no choice but to pay this taxOn a separate note, the Bill puts at rest a constant debate on the sunset clause for US Estate and Gift Tax Exemption amount.Under the proposed Bill, the original exemption amount of USD 5,000,000 has been substituted with USD 15,000,000 making it effective for taxable years beginning after December 31, 2025.This will be a relief for many US Persons who are concerned that the current limits of USD 13.99 million will stand reduced to the original number of USD 5 million.With the introduction of the revised provisions this fear will lay at rest as the government now has proposed scaling up the base limit to USD 15 million with future adjustments for inflationGiven the constantly evolving cross border legal and tax landscape, Indian HNIs and family businesses need to reassess their global financial planning . As cross-border tax regimes tighten, having structured, compliant platforms becomes critical.The US will continue to be a desired location for Indians while the UK remains a viable wealth gateway, particularly with recent Free Trade Agreement (FTA) gains, but each jurisdiction now carries unique tax implications that must be managed prudently and in a compliant manner with proper planning and advice.(The author is MD, Wealth Planning & Family Solutions, LGT Wealth India): Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)