5% Tax on Remittances: Implications for NRIs, H-1B Workers, and Students
A new 5% tax on remittances sent by immigrants, including NRIs and H-1B visa holders, will significantly impact their financial planning and investments in India. The tax, part of the 'One Big, Beautiful Bill,' aims to collect funds for the US Treasury but may lead to a rush in sending money abroad before the tax takes effect.
Remittance TaxNrisH1b WorkersInternational StudentsReal EstateReal Estate MumbaiMay 20, 2025
Real Estate Mumbai:Non-Resident Indians (NRIs), H-1B employees, international students, and all other non-US citizens of America, including those with US Green Cards, will be directly impacted by the new law imposing a 5% tax on remittances sent by immigrants. The One, Big, Beautiful Bill proposes to tax outward remittances made by legal immigrants living, working, and studying in America. Every time an immigrant sends money abroad, the US Treasury will get a share of the remitted amount in the form of tax.
Called the ‘Excise tax on remittance transfers,’ the newly proposed provision imposes a 5% excise tax on remittance transfers. For example, at the current INR-USD exchange rate, any transfer of Rs 1 lakh ($1,200) will incur a tax of $60 (Rs 5,000). The tax will be collected by authorized remittance transfer providers and remitted to the Secretary of the Treasury quarterly.
The new 5% tax on remittance will not impact US citizens or nationals, provided that they use a ‘qualified remittance transfer provider’ to make the payment. The provision also provides a refundable tax credit for any excise taxes required to be paid by taxpayers with valid Social Security numbers. Indians in the US are known to remit millions of dollars to support their families in India and also to invest in their home country.
“The 5% tax raises the cost of sending money to India. With time this could lead to smaller remittances or less frequent transfers, particularly for the middle income group. High net worth individuals may absorb the cost more easily, but for a significant segment, which is the middle class, it could influence financial planning and allocation toward Indian assets,” says Nish Bhatt, Founder & CEO, Millwood Kane International.
Impact on NRIs Sending Money Abroad
NRIs are significant US dollar remitters who have invested in the Indian stock market, mutual funds, and real estate market. “A 5% excise tax will be imposed on remittance transfers outside the US i.e., money sent abroad. This includes NRIs sending funds to parents in India, for the education of children, paying off loan EMIs, or making property investments,” says Dilshad Billimoria, Founder, Managing Director, and Sebi-registered Chief Financial Planner at Dilzer Consultants.
“With approximately 4.5 million Indian-origin individuals in the U.S., contributing $32 billion in remittances to India in 2023-24, this tax affects a substantial portion of the 28% of India’s $118.7 billion remittance inflows,” says Sonam Chandwani, Managing Partner KS Legal & Associates.
For NRIs and other Indian immigrants, the tax constitutes a material financial detriment. Levied at a flat 5% on all outbound transfers without a minimum threshold, it reduces the effective value of remittances, which are typically derived from post-tax income already subject to U.S. federal and state taxation. The tax amount directly diminishes funds available for critical expenses in India, such as healthcare, education, or housing. This reduction poses a disproportionate impact on lower-income households in India’s tier-II and tier-III cities, potentially necessitating reductions in essential expenditures or increased remittances to maintain existing obligations. The absence of provisions for tax credits under the U.S.-India Double Taxation Avoidance Agreement (DTAA) exacerbates concerns regarding double taxation, pending further clarification from the Internal Revenue Service (IRS).
Impact on Foreign Workers
The US, despite having a lower number of NRIs, is the second largest contributor to overall remittances, largely due to its skilled workforce’s higher earning capacity. Migrant workers prefer to accumulate and transfer larger amounts of money due to reduced overhead costs per dollar with larger remittances. In addition to personal remittances, the new 5% tax provision may impact the compensation practices of Indian employees working in America.
Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, says that if enacted, this provision risks diminishing the United States’ attractiveness as a destination for international talent and investment, while also raising diplomatic sensitivities and increasing compliance challenges for both individuals and employer enterprises. “Many foreign nationals receive restricted stock units (RSUs) as part of their pay packages. When these RSUs vest and are sold, the sales proceeds are often transferred overseas to the home country for personal use, family support, or investment. Under the proposed remittance tax, such transfers, even of post-tax proceeds, could attract the 5 percent excise levy, adding a layer of cost to already-taxed income.”
Impact on Overseas Students
International students who finish their studies in the US continue working under the OPT program and send money to India. Now, they will have to rethink their remittance strategy. “The proposed 5% remittance tax in the US introduces a new financial burden on Indian students pursuing education abroad. For many, remitting funds back home is not a luxury but a necessity to support families, repay obligations, or stay connected to their roots. This move, if implemented, will not only raise the cost of international education but also extend the repayment horizon for student loans, thereby increasing risk exposure for lenders,” says Prashant A. Bhonsle, Founder and CEO, Kuhoo Finance.
NRE and NRO Accounts
An NRI is allowed to open an NRE Account or an NRO Account in India. NRE is a Non-Resident (External) Account, which allows only foreign credits from outside India into the account. On the other hand, NRO stands for Non-Resident (Ordinary) Account. Such accounts allow both foreign currency credits from outside India as well as rupee credits from within India.
“We anticipate an increase in the inflow of funds in NRE accounts, which hold full repatriation status as part of pre-December 31, 2025 planning by Indian NRI families. This may result in increased inflows into Indian securities and the real estate market. However, post December 31, there may be a reduction in the inflow as families will be cognizant of the additional 5% remittance transfer excise tax cost for undertaking such investments in a jurisdiction outside the United States,” says Poonam Mirchandani, Managing Director, Wealth Planning & Family Solutions.
Impact on Indian Real Estate
As per RBI norms, NRIs are allowed to buy properties in India. US-based NRIs will also have to re-look at the options of buying real estate in India once the new 5% tax rule kicks in. “The tax is poised to adversely affect NRI investments in Indian real estate and capital markets. Real estate, particularly in metropolitan areas like Mumbai, Delhi, and Hyderabad, relies heavily on NRI capital, with 59% of Delhi NCR’s 2024 housing projects priced above Rs 2.5 crore targeting this demographic. Similarly, investments in Indian equities or mutual funds through NRE/NRO accounts face heightened costs, which may deter participation and reduce portfolio allocations to Indian securities,” says Chandwani.
Industry experts are of the view that the immediate impact will be there, but later on things will return to normal. “The proposed tax would apply to remittances sent to both NRO and NRE accounts. These accounts are key vehicles for NRIs investing in Indian real estate, equities, and other financial instruments. While an initial dip in remittance activity is likely, particularly in high-value segments, this should be viewed as a potential short-term adjustment rather than a long-term trend,” says Rohan Khatau, director, CCI Projects.
Current Status
On Sunday, May 18, Trump’s ‘one big, beautiful bill’ passed a crucial hurdle in the House of Representatives, advancing one step closer to a chamber-wide vote later this week following a conservative rebellion. The bill is expected to be signed by Trump by July 4. Thereafter, the 5% tax on remittance will be on the amount transferred after December 31, 2025. If the bill becomes law, there will be a 5% impact on the amount remitted starting January 1, 2026. “This may activate a stream of outflow of money from US accounts by NRIs and other immigrants to their home countries to sidestep the trigger of 5% tax. We anticipate families initiating planning for historical funds prior to the changes being implemented as well as restructuring their present account holdings to outside US. However, post December 31, 2025, this window gets closed, especially for individuals who generate regular income in the US, who will have no choice but to pay this tax,” says Mirchandani.
Called the ‘Excise tax on remittance transfers,’ the newly proposed provision imposes a 5% excise tax on remittance transfers. For example, at the current INR-USD exchange rate, any transfer of Rs 1 lakh ($1,200) will incur a tax of $60 (Rs 5,000). The tax will be collected by authorized remittance transfer providers and remitted to the Secretary of the Treasury quarterly.
The new 5% tax on remittance will not impact US citizens or nationals, provided that they use a ‘qualified remittance transfer provider’ to make the payment. The provision also provides a refundable tax credit for any excise taxes required to be paid by taxpayers with valid Social Security numbers. Indians in the US are known to remit millions of dollars to support their families in India and also to invest in their home country.
“The 5% tax raises the cost of sending money to India. With time this could lead to smaller remittances or less frequent transfers, particularly for the middle income group. High net worth individuals may absorb the cost more easily, but for a significant segment, which is the middle class, it could influence financial planning and allocation toward Indian assets,” says Nish Bhatt, Founder & CEO, Millwood Kane International.
Impact on NRIs Sending Money Abroad
NRIs are significant US dollar remitters who have invested in the Indian stock market, mutual funds, and real estate market. “A 5% excise tax will be imposed on remittance transfers outside the US i.e., money sent abroad. This includes NRIs sending funds to parents in India, for the education of children, paying off loan EMIs, or making property investments,” says Dilshad Billimoria, Founder, Managing Director, and Sebi-registered Chief Financial Planner at Dilzer Consultants.
“With approximately 4.5 million Indian-origin individuals in the U.S., contributing $32 billion in remittances to India in 2023-24, this tax affects a substantial portion of the 28% of India’s $118.7 billion remittance inflows,” says Sonam Chandwani, Managing Partner KS Legal & Associates.
For NRIs and other Indian immigrants, the tax constitutes a material financial detriment. Levied at a flat 5% on all outbound transfers without a minimum threshold, it reduces the effective value of remittances, which are typically derived from post-tax income already subject to U.S. federal and state taxation. The tax amount directly diminishes funds available for critical expenses in India, such as healthcare, education, or housing. This reduction poses a disproportionate impact on lower-income households in India’s tier-II and tier-III cities, potentially necessitating reductions in essential expenditures or increased remittances to maintain existing obligations. The absence of provisions for tax credits under the U.S.-India Double Taxation Avoidance Agreement (DTAA) exacerbates concerns regarding double taxation, pending further clarification from the Internal Revenue Service (IRS).
Impact on Foreign Workers
The US, despite having a lower number of NRIs, is the second largest contributor to overall remittances, largely due to its skilled workforce’s higher earning capacity. Migrant workers prefer to accumulate and transfer larger amounts of money due to reduced overhead costs per dollar with larger remittances. In addition to personal remittances, the new 5% tax provision may impact the compensation practices of Indian employees working in America.
Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, says that if enacted, this provision risks diminishing the United States’ attractiveness as a destination for international talent and investment, while also raising diplomatic sensitivities and increasing compliance challenges for both individuals and employer enterprises. “Many foreign nationals receive restricted stock units (RSUs) as part of their pay packages. When these RSUs vest and are sold, the sales proceeds are often transferred overseas to the home country for personal use, family support, or investment. Under the proposed remittance tax, such transfers, even of post-tax proceeds, could attract the 5 percent excise levy, adding a layer of cost to already-taxed income.”
Impact on Overseas Students
International students who finish their studies in the US continue working under the OPT program and send money to India. Now, they will have to rethink their remittance strategy. “The proposed 5% remittance tax in the US introduces a new financial burden on Indian students pursuing education abroad. For many, remitting funds back home is not a luxury but a necessity to support families, repay obligations, or stay connected to their roots. This move, if implemented, will not only raise the cost of international education but also extend the repayment horizon for student loans, thereby increasing risk exposure for lenders,” says Prashant A. Bhonsle, Founder and CEO, Kuhoo Finance.
NRE and NRO Accounts
An NRI is allowed to open an NRE Account or an NRO Account in India. NRE is a Non-Resident (External) Account, which allows only foreign credits from outside India into the account. On the other hand, NRO stands for Non-Resident (Ordinary) Account. Such accounts allow both foreign currency credits from outside India as well as rupee credits from within India.
“We anticipate an increase in the inflow of funds in NRE accounts, which hold full repatriation status as part of pre-December 31, 2025 planning by Indian NRI families. This may result in increased inflows into Indian securities and the real estate market. However, post December 31, there may be a reduction in the inflow as families will be cognizant of the additional 5% remittance transfer excise tax cost for undertaking such investments in a jurisdiction outside the United States,” says Poonam Mirchandani, Managing Director, Wealth Planning & Family Solutions.
Impact on Indian Real Estate
As per RBI norms, NRIs are allowed to buy properties in India. US-based NRIs will also have to re-look at the options of buying real estate in India once the new 5% tax rule kicks in. “The tax is poised to adversely affect NRI investments in Indian real estate and capital markets. Real estate, particularly in metropolitan areas like Mumbai, Delhi, and Hyderabad, relies heavily on NRI capital, with 59% of Delhi NCR’s 2024 housing projects priced above Rs 2.5 crore targeting this demographic. Similarly, investments in Indian equities or mutual funds through NRE/NRO accounts face heightened costs, which may deter participation and reduce portfolio allocations to Indian securities,” says Chandwani.
Industry experts are of the view that the immediate impact will be there, but later on things will return to normal. “The proposed tax would apply to remittances sent to both NRO and NRE accounts. These accounts are key vehicles for NRIs investing in Indian real estate, equities, and other financial instruments. While an initial dip in remittance activity is likely, particularly in high-value segments, this should be viewed as a potential short-term adjustment rather than a long-term trend,” says Rohan Khatau, director, CCI Projects.
Current Status
On Sunday, May 18, Trump’s ‘one big, beautiful bill’ passed a crucial hurdle in the House of Representatives, advancing one step closer to a chamber-wide vote later this week following a conservative rebellion. The bill is expected to be signed by Trump by July 4. Thereafter, the 5% tax on remittance will be on the amount transferred after December 31, 2025. If the bill becomes law, there will be a 5% impact on the amount remitted starting January 1, 2026. “This may activate a stream of outflow of money from US accounts by NRIs and other immigrants to their home countries to sidestep the trigger of 5% tax. We anticipate families initiating planning for historical funds prior to the changes being implemented as well as restructuring their present account holdings to outside US. However, post December 31, 2025, this window gets closed, especially for individuals who generate regular income in the US, who will have no choice but to pay this tax,” says Mirchandani.
Frequently Asked Questions
What is the new 5% tax on remittances?
The new 5% tax on remittances is a provision in the 'One Big, Beautiful Bill' that imposes a 5% excise tax on remittance transfers made by legal immigrants living, working, and studying in America.
Who will be affected by the 5% remittance tax?
The 5% remittance tax will affect Non-Resident Indians (NRIs), H-1B employees, international students, and all other non-US citizens, including those with US Green Cards.
How will the tax be collected?
The tax will be collected by authorized remittance transfer providers and remitted to the Secretary of the Treasury quarterly.
Will the tax impact US citizens?
No, the tax will not impact US citizens or nationals, provided that they use a ‘qualified remittance transfer provider’ to make the payment.
What is the expected impact on Indian real estate?
The tax is poised to adversely affect NRI investments in Indian real estate, particularly in metropolitan areas like Mumbai, Delhi, and Hyderabad, where 59% of Delhi NCR’s 2024 housing projects are priced above Rs 2.5 crore targeting this demographic.
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