How Trump’s 3.5% remittance tax will affect US-based NRIs’ money flow to India

The proposed legislation seeks to levy a 3.5 percent "remittance tax" on funds transferred out of the US by individuals who are not US citizens or US nationals.

The US House of Representatives on May 22 passed President Donald Trump's “One Big Beautiful Bill” with a thin margin of one vote. Once the US Senate approves this bill, it could soon affect the wallets of millions of Non-Resident Indians (NRIs) living in the US.

This bill proposes to impose a 3.5 percent excise tax (reduced from the initial proposal of 5 percent) on remittances from the US—a move that could significantly impact financial planning for NRIs with family or financial commitments in India.

What’s in the proposal?

The proposed legislation seeks to levy a 3.5 percent "remittance tax" on funds transferred out of the US by individuals who are not US citizens or US nationals. That includes NRIs living in the US on H1B, L1, F1 visas, and even Green Card holders.

Effective Date: If passed by the Senate, the law will come into effect on January 1, 2026.

Example: Transfer $1,000 to India and $35 will be deducted as tax. Your recipient receives $965.

Why this matters for NRIs

For many NRIs, especially those supporting dependents or planning a future back in India, this tax introduces a new layer of complexity:

No tax credit: You won’t be able to offset this 3.5 percent amount against federal or state taxes in the US.

Reduced receipts: Your family or financial recipients in India will receive less money.

Inflated goal costs: Planning for large financial goals like buying property in India will now effectively cost 3.5 percent more.

Tax stacking: This 3.5 percent is in addition to any US taxes already paid—it’s not a substitute.

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How to prepare: smart planning tips

While the proposal is not law yet, here’s how you can be proactive:

Don’t panic: This is still under legislative review. You have until December 31, 2025, if it gets passed.

Start planning now: Consider creating a “Plan B” that factors in higher transfer costs in your long-term budgeting.

Accelerate transfers: If you are planning to send a large sum in the next couple of years (e.g., for family support or investments), consider sending it before 2026.

Revise financial goals: Factor in the 3.5 percent tax in your future remittances and adjust your savings targets accordingly.

Relocating NRIs: If you’ve returned to India or plan to, consider remitting your US savings (except those needed for US-based goals like a child’s higher education in the US).

Talk to a professional: A financial / tax advisor can help model different scenarios and optimise your tax and remittance strategy.

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Impact on India-US DTAA

The India-US Double Taxation Avoidance Agreement (DTAA) has a non-discrimination clause (Article 26). It ensures that citizens of one country are not subjected to harsher taxation in the other. If the remittance tax only applies to NRIs and not US citizens, it could be argued that this violates the DTAA. However, the legal clarity is still pending. Until that’s resolved, it’s wise to prepare for the worst while hoping for the best.

The writer is founder of Bachhat and a SEBI registered fixed-fee financial planner

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with financial advisor before taking any decisions.