U.S. Proposes 5% Tax on Remittances by Non-Citizens: Major Impact on Indian Diaspora

A new U.S. legislative proposal seeks to impose a 5% tax on all international money transfers made by non-citizens, including H-1B visa holders and green card recipients. This move could significantly affect the Indian diaspora, potentially costing them over $1.6 billion annually, given India’s status as the world’s top recipient of remittances.

Key Points:

• Who is Affected: Non-U.S. citizens residing in the U.S., such as H-1B visa holders, green card holders, and other visa categories, will be subject to the 5% tax on funds sent abroad. U.S. citizens are exempt from this provision.
• Financial Implications: For every ₹1 lakh (approximately $1,200) sent to India, NRIs would incur a tax of ₹5,000 (around $60). This tax is expected to generate billions for the U.S. Treasury but could strain the finances of immigrant families supporting relatives back home.
• Legislative Status: Introduced on May 12, 2025, the bill is backed by President Donald Trump, who is serving his second term. The legislation aims to make the 2017 Tax Cuts and Jobs Act permanent, increase the standard deduction, and extend the child tax credit through 2028. The House of Representatives aims to pass the bill by June or July 2025.
• Community Response: The proposal has sparked concern among immigrant communities. Critics argue that the tax could push remittances into informal channels, reducing transparency and potentially harming both U.S. and foreign economies.

Advice for NRIs:

• Plan Ahead: Consider adjusting remittance strategies, such as consolidating transfers to minimize tax impact.
• Stay Informed: Monitor the bill’s progress and consult with financial advisors to understand potential implications.
• Explore Alternatives: Evaluate different financial instruments and channels for supporting family members in India.

If enacted, this tax could reshape the financial landscape for NRIs in the U.S., affecting their ability to support families and invest in India. Stakeholders are urged to stay informed and proactive in financial planning to mitigate potential challenges arising from this proposed legislation.