NRIs, H-1B workers get big relief; immigrant remittance tax reduced from 5% to 3.5%

In a big relief for the large NRI population in America, the tax on remittances made by American immigrants has been reduced.

The US House of Representatives approved President Trump’s ‘One Big Beautiful Bill Act’ in a narrow 215-214 vote. The most significant part of the bill was the introduction of a ‘tax on remittance’ made by immigrants living in America.

The Bill proposes taxing outward remittances made by legal immigrants in America, with the US Treasury receiving a portion of the remitted amount.

Called the ‘Excise tax on remittance transfers’, the newly proposed provision imposes a 5% excise tax on remittance transfers. Before being passed by the House, there were some amendments to it.

Something of concern to NRIs and other immigrants in the US is the change in the rate of excise tax on remittances. “Originally proposed at 5%, the excise tax rate has been revised to 3.5% following an amendment to the bill by the Manager’s Amendment,” says CA (Dr.) Suresh Surana.

Here’s how it will work: For example, at the current INR-USD exchange rate, any transfer of Rs 1 lakh ($1,200) will incur a tax of $60 (Rs 3,500). The tax will be collected by authorized remittance transfer providers and remitted to the Secretary of the Treasury quarterly.

The US government’s newly introduced 3.5% remittance tax, will not affect US citizens or nationals if they use a ‘qualified remittance transfer provider’.

“Notably, this law would likely impact those holding US Green cards, holders of student and work visas (such as F1, L1, H1B, etc) who are based in the US. There seems to be exemption carved out for U.S. citizens and nationals and pursuant to which such individuals will not be subject to the excise tax,” adds (Dr.) Surana.

According to RBI data, the United States is the largest source of remittances to India, accounting for over US$ 33 billion in 2023-24. There are over 4.46 million Indians residing in the US. The share of remittances from the United States in overall remittance inflows increased dramatically, from 22.9% in 2016 to 23.4% in 2020-21 and 27.7% in 2023-24.

A 3.5% tax on remittances is expected to generate billions of dollars in excise duty from the Indian diaspora in the United States. Many NRIs, H-1B employees, and Indian students may think about moving their US-accumulated funds to India to avoid paying excise taxes on their remittances, as this act will go into effect on January 1, 2026.