3.5% remittance tax: Sending money from US to India to upset many; here's what NRIs can do to save tax on remittances This tax, aimed at protecting US dollar outflow, may affect investments and corporate mobility programs. Experts suggest it could discourage remittances to India and prompt increased US investments
Sending money from the US to India could get costlier in 2026 if President Donald Trump’s proposal goes through. The 1,116-page ‘One Big Beautiful Bill’—which outlines tax reforms and spending cuts—has cleared the House of Representatives and now moves to the Senate. A vote is likely in late June or July. If passed, the bill will become law.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} One provision in the bill imposes a 3.5% tax on non-citizens sending money abroad. Before the House passed the bill on 22 May, the proposed remittance tax was 5%.
This is of special significance to Indians who are among the largest migrants in the US. More than 2.9 million Indian immigrants lived in the United States as of 2023, making USA the second most popular global destination for Indians after the United Arab Emirates, as per the Migration Policy Institute Data. The data further says that Indians make up the second largest foreign-born group in the United States, after Mexicans, accounting for 6%of all 47.8 million foreign-born residents, as of 2023.
US citizens exempted
The bill exempts US citizens from the remittance tax (referred to as an excise tax). Only non-US citizens—including green card holders and those on employment visas— would be required to pay it. For US citizens, if the 3.5% tax is collected, the bill allows a credit mechanism during tax filing, provided they are verified senders using qualified remittance providers.As per the bill, this privilege is not meant for other people living in the US, like green card holders, professionals on work visas many of whom are Indians. Even students with work-related income—such as from gigs—would have to pay the 3.5% tax if they choose to repatriate the money to India after completing their studies and returning home.
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“The measure is indeed aimed at protecting the outflow of US dollars from the country and encouraging local investment, while also generating an additional stream of revenue,” says Kuldip Kumar, Partner. Mainstay Tax Advisors.
What should NRIs do?
From the reading of the bill, there is nothing much you could do. The proposed 3.5% tax will shave off a small chunk of the money sent to India every time a remittance is made. This is expected to hit those who send money regularly.Sudarshan Motwani, Founder & CEO of BookMyForex, says that this will have a big impact on those who have gone there to work. “These people have gone there for better prospects so that they could support their families back home. They need to send money back home to India. Hence, they will all be subjected to the new 3.5% tax,” says Motwani.
The share of the US in India’s total inwards remittances is the largest; 27.7% in 2023-24 (approximately $32 billion), up from 22.9% in 2016-17, as per RBI’s data.
“This measure could impact the flow of funds into Non-Resident External (NRE) accounts and investments in India’s booming premium real estate market, which has been increasingly attracting overseas capital from Indians abroad,” adds Kumar. Aside from real estate, Kumar adds that it may impact the mobility programs of corporates with employees who are relocated to the US and are paid in the US.
“These employees may seek to negotiate the additional 3.5% cost as part of their relocation package or under tax equalisation arrangements, effectively increasing the salary costs for the companies. Since this levy is classified as an excise tax, it may not fall within the definition of ‘income tax’ as outlined in tax treaties, and therefore may not be eligible for a foreign tax credit,” he says.
CA Manoj K Pahwa, FEMA & International Tax Consultant’s reading of the bill is also similar. He too says that the bill seeks to exempt US citizens and nationals from paying the 3.5% tax. He says that the tax would dissuade Indians to send as much back home as they used to earlier. “To avoid paying 3.5% tax, many of them would now increasingly invest money in the US itself.”
Last but not least, a key question that arises is whether this proposed tax will also affect investments made by Indians in US markets. For instance, if an individual has invested in US stocks or other financial instruments and later wishes to withdraw funds or take some money off the table, would the 3.5% remittance tax apply to such transactions? Kumar says that a very initial, but a rough interpretation, is to check how the investment has been made. For example, if an individual opens a bank account in the US, invests through it, realises the sale proceeds in the same account, and then remits the funds to India, Kumar feels the remittance tax could be triggered in such a case.
Another example could be employees receiving stock from a US-based parent company as part of an Employee Stock Option Plan (ESOP). If they later sell these shares and transfer the proceeds to India, the remittance tax may apply in such cases. “Generally, a depository account is opened in the US in the employee’s name. In such cases too this levy may trigger when shares are sold and proceeds remitted to India,” says Kumar.
If this is indeed true, there could be a small complication. “This also raises the issue of whether the remittance tax paid in the US can be claimed as a credit against the Indian tax liability arising from the sale of shares in the US by an ordinarily resident Indian. Since the remittance tax is classified as an excise tax, it may not fall within the scope of taxes covered under the India-US tax treaty. Therefore, that becomes an additional cost and also a consideration for investing in US stocks,” says Kumar.
To be sure, the bill has yet to be passed into an Act. Also, further clarifications are awaited, especially about how your US investments and ESOPs would be taxed. “After all, US may not want to discourage their inward investments,” feels Kumar.
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This story originally appeared on: India Times - Author:Faqs of Insurances
