3.5% US Tax On Remittances May Hit Indian NRIs Hard, Lower Foreign Exchange Inflow

India may see less inflow of remittances from NRIs residing in the United States of America (USA) once the proposed provision in the One Big, Beautiful Bill Act imposing an Excise tax on remittances at the rate of 3.5 per cent becomes effective. It was earlier proposed to 5 per cent. This provision will impact NRIs living in the US on H1B, L1, F1 visas, and even Green Card holders. The Remittance tax will apply on the remittances in addition to any income taxes paid in US. It has sparked concern among the Indian diaspora.

It will also lead to a substantial decrease in foreign exchange inflow NRIs may find it costly to send money back to India in the future.

According to data published by the Reserve Bank of India (RBI), India received $33 billion (approx.) in remittances from the US in the financial year 2023-24, out of a total of $118.7 billion (approx.).

“The proposed tax will significantly affect Indian immigrants who send money to support families in India," said Bikramjit Bedi, Partner – Taxation, ASA & ASSOCIATES LLP. He noted that the added burden may deter many from continuing regular remittances, potentially impacting India’s foreign exchange inflows.

These individuals frequently remit funds to support their families back home. Experts warn this could lead to a decline in the overall volume of remittances.

In FY24, India received nearly $33 billion in remittances from the US, according to RBI data—almost 28% of the total $118.7 billion in remittances received. A drop in this figure could impact household incomes and consumption levels in India.
Complex Compliance And Legal Ambiguity

Another layer of concern is the lack of clarity on whether taxpayers can claim credits for the remittance tax. “India has a similar TCS provision, but offers relaxations based on purpose. The US tax, however, offers no such relief," Bedi pointed out.

The tax may also test the limits of the India-US Double Taxation Avoidance Agreement (DTAA). While some argue the proposed levy violates the DTAA’s non-discrimination clause, others believe the clause only covers income tax—not excise or transactional levies.

Deepashree Shetty, Partner – Global Employer Services, BDO India, said the tax could impose not just financial pressure but also added paperwork. “Remitters may face enhanced scrutiny, as banks would need to report data like nationality, remittance amounts, and tax paid," she explained.

She added that given their temporary stay, individuals on such visas rely heavily on remittances. “The tax would be an additional charge, reducing the net amount that reaches families back home," she said.