Indian immigrants to lose Rs 10,000 crore annually by 3.5% remittance tax

Indians living in the US will be ‘short-changed’ by a new tax rule to be implemented by the Trump administration. For Indian Immigrants, the newly proposed tax on remittances is likely to make them lose Rs 10,000 crore annually.

There is a cost involved for sending money from the US to India, and immigrants look for the cheapest options to remit funds to India. Now, there is an additional burden in the form of ‘remittance tax’.

A clause in Trump’s ‘One, Big, Beautiful Bill’ proposes to tax remittances made by immigrants to their home country.

The proposed 3.5% tax on remittances will apply to all foreign workers, including green card holders, international students and temporary visa workers such as those on H-1B visas.

Although applicable to remittances made by all immigrants in America, the big impact could be felt by Indians. And to the Indian economy.

World Bank data shows that in 2023, Indians abroad sent home $119 billion. The share of the US in India’s total remittances remained the largest, rising to 27.7 per cent in 2023-24, nearly $33 billion.

This means, of the total remittance of about Rs 10 lakh crore in a year, the Indians based out of the US send nearly Rs 2.75 crore every year to India.

A 3.5% tax on Rs 2.75 lakh crore will add nearly Rs 10,000 crore to the US treasury, while Indian investors will be left ‘short-changed’ with lower post-tax returns.

Every Indian immigrant in the United States, which number more than 5 million, will be taxed on the amount they remit to India. For instance, when sending Rs 1 lakh to India, only Rs 96,500 will be transferred to the Indian bank account (without accounting fees), and Rs 3,500 will be subtracted and routed to the US federal government.

Remittances play a big role in the Indian economy. Net remittance receipts finance around half of India’s merchandise trade deficit. Also, India’s remittance receipts consistently exceed its gross inward FDI flows, highlighting their significance as a reliable external financing source.

A dent of almost Rs 10,000 crore, based on the most recent data available for 2024, is expected to have some impact on the Indian economy. A fall of 10% in total remittances from the US could result in a shortfall of $3 billion to $4 billion for the Indian economy.

Center for Global Development found that Mexico stands to lose the most in absolute terms, over $2.6 billion per year, followed by a few large middle-income countries (India, China, Vietnam).