US tax bill may dent remittances to India, says govt sources

Remittances are a vital source of foreign exchange for India.

The recent tax legislation in the process of being passed in the United States could have an adverse impact on remittances flowing into India, though the extent of the effect is yet to be fully assessed, senior government sources said on May 23.

“The US tax bill will have an impact on remittances to India. To what extent it will cast a dent on the remittances will have to be seen,” a government official stated, acknowledging early concerns over the potential repercussions of the new bill on Indian diaspora-driven inflows.

Remittances are a vital source of foreign exchange for India.

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.

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.

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

The top five recipient countries for remittances in 2024 were India, with an estimated inflow of USD 129 billion, followed by Mexico (USD 68 billion), China (USD 48 billion), the Philippines (USD 40 billion), and Pakistan (USD 33 billion), World Bank said in a blog in December 2024.

India-UK FTA

The government has yet to conduct a detailed analysis of its potential fiscal or macroeconomic impact. “We have also not yet analysed or assessed the revenue implication of the India-UK Free Trade Agreement (FTA),” the official added.

If US tax rules lead to lower net remittances, it could affect household consumption in certain Indian states, particularly Kerala, Uttar Pradesh, and Maharashtra, which receive the highest share of foreign transfers. However, the full extent of the impact will depend on how the new tax bill.