Will Donald Trump Hurt India with Stinging Remittances Tax?
PM Narendra Modi during his US visit and US President Donald Trump (Image credit X.com)
Uncle Sam’s New Sting: The $1.6 Billion Blow to the Indian Diaspora
P. SESH KUMAR
NEW DELHI, May 16, 2025 – A new legislative proposal in the United States, dubbed “The One Big Beautiful Bill,” threatens to dent the wallets of lakhs of Indians living in the US by introducing a 5% tax on outward remittances by non-citizens.
This move comes at a time when the US is the single largest source of remittances to India, contributing nearly $32 billion out of the $118.7 billion India received in 2023–24. With close to 45 lakh Indian-origin individuals residing in the US, this legislative manoeuvre has set off alarm bells across the diaspora. The move may have economic, social, and diplomatic implications.
The Looming Tax Shock: An Unwelcome Surprise
The deceptively innocuous title of “The One Big Beautiful Bill” masks a provision with sharp financial teeth. For the millions of Indians working, studying, or residing in the United States on H-1B visas, green cards, or other non-citizen statuses, the bill spells an immediate economic penalty: a proposed 5% tax on any money they remit outside the US. For many, this remittance isn’t a luxury—it’s a lifeline supporting aging parents, funding education, building homes, or investing in family-run businesses back in India.
As of 2023–24, India received $118.7 billion in remittances, a record high. Of this, the US accounted for a staggering $32 billion—nearly 28% of the total. This is not surprising, given that the US hosts around 45 lakh persons of Indian origin (PIOs), including 32 lakh non-resident Indians (NRIs). Many of these are white-collar professionals in tech, finance, and healthcare sectors whose earnings power India’s remittance economy. If the bill passes and the remittance volume remains unchanged, the diaspora would collectively be forced to cough up $1.6 billion annually to the US treasury. That’s money that would otherwise flow into Indian households, banks, and rural economies.
What’s Driving This Policy?
The proposal appears to be part of a broader American thrust to plug revenue leaks, tighten controls on capital flows, and possibly exert more grip on migrant financial behaviour. There may also be subtle political undertones. With immigration emerging as a hot-button issue in American politics, proposals like these allow lawmakers to appear tough on “outsiders” while also boosting the national exchequer. But this tax, couched as a sovereign right, smacks of double-dipping: these migrants already pay income taxes in the US, consume local services, and contribute to the economy. Penalizing them again for sending money home is neither just nor economically sound.
The Indian Angle: A High-Risk Dependency
For India, the move exposes a significant structural vulnerability—its overreliance on remittances from a few key countries, with the US at the top. Over the years, successive governments have waxed eloquent about record remittance inflows, often interpreting them as a sign of India’s global economic muscle.
But this development is a reality check: such flows are ultimately subject to the whims of host country policy. India has little to no control over taxation policies in the US, and any hostile shift—like this one—can have devastating ripple effects.
Moreover, remittance money isn’t just passive savings. It feeds into household consumption, real estate investment, insurance premiums, and local enterprise creation.
A 5% reduction at the source translates into a bigger real impact down the line, especially for Tier II and Tier III cities where such remittances are financial lifelines.
The H-1B Paradox: High Demand, Higher Costs
Interestingly, the bill’s rollout coincides with a sustained surge in H-1B visa demand. For FY 2026, the US has already received 3.4 lakh H-1B registrations, vastly overshooting the annual cap of 85,000. Around 60% of these are from Indian nationals—underscoring the diaspora’s dominant presence in the skilled labor market.
Ironically, even as the US relies on Indian talent to fill key roles in its economy, it is now preparing to impose a punitive levy on that same cohort’s financial transactions.
The contradiction is glaring: a country hungry for Indian techies is now attempting to tax their sense of duty toward families back home.
Ripple Effects and Diplomatic Dilemmas
This legislative move could complicate Indo-US relations, especially at a time when both countries are seeking to deepen strategic ties across trade, defence, and technology.
India may well raise the issue through diplomatic channels or seek reciprocity. But realistically, there’s little it can do to alter another nation’s domestic tax policy.
What it can—and must—do, however, is prepare a coordinated response, both at the policy and diaspora engagement levels.
The RBI and Indian embassies may need to issue advisories to NRIs, while the Ministry of External Affairs should initiate a dialogue with US lawmakers. Moreover, remittance-dependent households should be made aware of the potential impact and encouraged to diversify income streams.
Indian banks, too, may need to rethink remittance fee structures and incentives to maintain flows despite the tax.
Way Forward: Preparing for a New Remittance Era
If the bill becomes law, the remittance landscape will change irrevocably. India must pre-emptively act. First, by expanding alternate corridors such as those from the Gulf, UK, or Singapore.
Second, by incentivizing domestic investments from NRIs to offset loss of remittance liquidity. Third, by boosting financial inclusion at home so that dependence on overseas cash transfers reduces over time.
Finally, India should push for bilateral agreements that protect diaspora interests—taxation included.
The Indian diaspora in the US has long been a pillar of strength—politically active, economically powerful, and culturally rich. They deserve better than being treated as a piggy bank for fiscal balancing.
And India must ensure their contributions—both at home and abroad—are protected from such unilateral penal levies. After all, when the global Indian thrives, India thrives.
(This is an opinion piece; views expressed solely belong to the author)
Follow The Raisina Hills on WhatsApp, Instagram, YouTube, Facebook, and LinkedIn
About The Author
