Impact of New US Remittance Tax on Indian Diaspora
The US House of Representatives has passed the 'One, Big, Beautiful Bill' (OBBB), which includes a 3.5% excise tax on outward remittances for non-citizens and foreign nationals. This could significantly affect the Indian diaspora, who send substantial funds back to India for family support and investments.
Remittance TaxIndian DiasporaUs House Of RepresentativesObbbNri InvestmentsReal EstateMay 24, 2025
The Indian diaspora in the US, which includes 5.4 million Indians (PIOs and NRIs), forms about 1.6% of the country's overall population and is the richest non-White ethnic group in the US. Indian Americans maintain close links with their families in India, often remitting funds to support them and contribute to various productive investments. According to global data, NRI remittances bolster India's economy by over $129 billion, or 3% of its GDP. The US is the largest source of remittances to India, accounting for nearly 28% of total inflows in FY24, followed by the UAE at 19.2%. Remittances are the second-largest source of funds in India after service exports and are relatively stable during economic volatility.
If the OBBB is passed into law, it is likely to impact remittances sent by expatriate non-US citizen Indians by about $1.6 billion. H-1B employees, international students, and all other non-US citizens, including those with US green cards, will be directly affected by the 1,116-page OBBB. Several Indian states provide NRIs with various incentives, encouraging them to establish startups and small businesses, especially in tier-2 and -3 cities. They also offer seed funding, angel investment, or bridge loans. After the remittance tax, some NRIs in the US may review their plans and consider offshore incorporation in countries like Singapore or Delaware to avoid taxes on inbound capital, or choose other channels of transmission.
Some NRIs may even explore informal channels, such as hawala networks, cryptocurrency transfers, and non-resident joint accounts, to circumvent the tax. These actions could undermine financial transparency and hurt legitimate banking channels. Many NRIs explore investing in real estate closer to their homes in India. The OBBB may delay or lead to the scaling down of such investments from the US, potentially slowing down inventory movement in NRI-favored townships and gated projects in states like Kerala, Gujarat, Punjab, Andhra Pradesh, Telangana, and Karnataka.
The proposed excise tax raises several questions about implementation and fairness. Unlike income tax, excise taxes are not typically deductible in US or Indian tax filings. Therefore, the US NRI pays the tax but cannot claim a rebate. This is different from Indian taxation for outward remittances, where tax collected at source (TCS) is applicable above ₹7 lakh and adjusted at the time of income tax filing.
Indian Americans contribute not only financially but also emotionally to their families 'back home' or symbolically to support the Indian growth story. Taxing their remittances could create a sense of alienation, reduce interest in buying homes, or discourage plans to retire in India. It could also dampen participation in community development or CSR activities in India. A tax that eats into this emotional and financial pipeline risks discouraging both routine transfers and long-term economic commitments.
Rather than disincentivizing remittances, the Trump administration should consider alternative avenues for formal channels, such as investment-linked tax credits or tiered taxation (only on transfers above a high threshold like $250,000 annually). These measures could help mitigate the negative impact on the Indian diaspora and maintain the flow of funds to India.
Frequently Asked Questions
What is the OBBB and what does it propose?
The 'One, Big, Beautiful Bill' (OBBB) is a sweeping tax-slashing and spending bill proposed by Donald Trump. It includes a 3.5% excise tax on outward remittances for non-citizens and foreign nationals that originate in the US to any other country.
How many Indians live in the US and what is their economic impact?
There are approximately 5.4 million Indians (PIOs and NRIs) living in the US, forming about 1.6% of the country's overall population. They are the richest non-White ethnic group in the US and contribute significantly to India's economy through remittances.
How much do NRI remittances contribute to India's economy?
NRI remittances contribute over $129 billion to India's economy, which is about 3% of its GDP. The US is the largest source of these remittances, accounting for nearly 28% of total inflows.
What are the potential impacts of the remittance tax on NRIs?
The remittance tax could impact remittances sent by expatriate non-US citizen Indians by about $1.6 billion. It may delay or scale down real estate investments, encourage offshore incorporations, and lead to the use of informal channels like hawala networks or cryptocurrency transfers.
What are some alternative measures suggested to mitigate the impact of the remittance tax?
Some suggested measures include investment-linked tax credits or tiered taxation, where the tax is only applied to transfers above a high threshold like $250,000 annually. These measures could help maintain the flow of funds to India while reducing the financial burden on NRIs.
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