In a move that could affect millions of Indian families, the United States is set to introduce a 5 per cent tax on money sent abroad by non-citizens, including NRIs, H-1B visa holders, Green Card holders, and students. The tax is part of the “One Big Beautiful Bill” currently under consideration in the US Congress and is expected to come into effect from 1 January 2026. This new levy will apply to all remittances sent from the US to other countries, including India.

The tax will be deducted by authorised money transfer companies at the time of sending funds and paid directly to the US Treasury. For example, a transfer of Rs 1 lakh (approximately $1,200) will attract a tax of $60 (around Rs 5,000). There is no exemption for smaller amounts, meaning even modest remittances will be taxed. US citizens, however, will be exempt if they use certified remittance services.

Impact on Indian Families and the Economy

India is one of the largest recipients of remittances globally, with about $120 billion received in the financial year 2023-24. Nearly $32 billion of this amount came from the US alone. These funds are crucial for many Indian households, helping with daily expenses, education fees, healthcare costs, and investments in property.

The introduction of this tax is likely to reduce the effective amount received by families, particularly affecting middle-income households who depend on regular support from relatives abroad. Financial advisors are already warning of a potential rush to send money before the tax takes effect, as people try to avoid the extra cost. This could lead to a spike in remittances before the end of 2025.

For example, someone sending $1,000 monthly will now pay an extra $50 in tax each time, amounting to $600 annually. To maintain the same level of support, senders will have to bear this additional cost. Larger transfers, such as those for education or property purchases, will face even higher taxes.

Legal and Financial Concerns for NRIs and Students

Experts have raised concerns about the broader economic impact of this tax. A slowdown in remittance inflows could cost India billions of dollars each year and put pressure on the rupee. Sectors like real estate, higher education, and healthcare, which rely heavily on overseas funds, may also be affected.

There are also worries about double taxation. The US tax applies to income that has already been taxed, and currently, the US-India Double Taxation Avoidance Agreement does not provide relief for this new levy. Some individuals may resort to unofficial channels to avoid the tax, increasing risks and complicating regulatory oversight.

The bill has passed the US House of Representatives and is expected to become law by July 2025 unless blocked in the Senate. Once enacted, the tax will apply to all remittances made from 1 January 2026 onwards. Indian expats have roughly 18 months to plan their remittances, seek financial advice, and possibly send money early to reduce the impact.