WITH the Trump administration planning to impose a 5 per cent tax on outward remittances, the cost for Indian-Americans sending money back home will rise.
The proposed bill, titled “One Big, Beautiful Bill”, would affect more than 40 million people in the US, including those holding green cards and H-1B visas.
The proposed levy won't apply to US citizens, and is expected to be passed in the House of Representatives this month and in the Senate in June.
This development depicts a significant shift in US tax policy, especially for foreign workers who regularly send money to their families abroad.
This would also apply to money being transferred to invest in Indian securities or real estate.
According to a recent article published in the Reserve Bank's March Bulletin, remittances to India have more than doubled from $55.6 billion in 2010-11 to $118.7 billion in 2023-24.
Over the years, there has been a shift in the dominance of India's remittances from the Gulf countries to advanced economies such as the US, the UK, Singapore, Canada, and Australia.
As per the RBI article, more than half of the 2023-24 inward remittances in India were from advanced economies.
In 2023-24, the share of remittances from the US was 27.7 per cent.
A back-of-the-envelope calculation shows that 27.7 per cent share translates to around $32.9 billion worth of remittances in absolute terms.
A 5 per cent tax on $32.9 billion would amount to $1.64 billion.
The cost of a remittance transaction currently includes two elements - the fees charged at any stage of the transaction and the exchange rate conversion from local currency to the currency of the recipient country.
The new tax will be an added burden for those sending money to their families abroad.
According to the World Bank, India has continued to remain the top recipient of remittances since 2008, with its share in world remittances rising from around 11 per cent in 2001 to about 14 per cent in 2024.
The top five recipient countries for remittances in 2024 were India, with an estimated inflow of $129 billion, followed by Mexico ($68 billion), China ($48 billion), the Philippines ($40 billion), and Pakistan ($33 billion).
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