New Delhi: The US House of Representatives passed the ambitious 1,116-page One Big Beautiful Bill Act on May 22, 2025, with a narrow 215-214 vote, introducing a significant 3.5% excise tax on outward remittances by non-US citizens. Titled the “Excise Tax on Remittance Transfers,” this provision, effective from January 1, 2026, targets non-residents, including green card holders, H-1B and F-1 visa holders, and other foreign nationals, while exempting US citizens.
What is the ‘One Big Beautiful Bill’?
The One Big Beautiful Bill Act is a comprehensive legislative package introduced under President Donald Trump’s administration, encompassing tax reforms, spending cuts, and regulations affecting income tax, healthcare, corporate tax, and national debt levels. Passed by the US House on May 22, 2025, the bill now awaits Senate approval, with a vote expected in late June or July 2025. If passed, it will become law, reshaping financial, trade, and immigration flows in the United States.
A key feature of the bill is the Excise Tax on Remittance Transfers, initially proposed at 5% but reduced to 3.5% through an amendment before the House vote. This tax applies to money sent abroad by non-US citizens, including legal immigrants and temporary visa holders, but exempts US citizens, who can claim a tax credit during filing if they use qualified remittance providers.
Understanding Remittances and Their Global Significance
Remittances refer to funds transferred from a country of work to a home country, often by migrant workers supporting families or investments abroad. In 2023, global remittances totaled approximately $656 billion, with India receiving 14.3% of this amount in 2024, marking its highest-ever share. The United States is the largest source of remittances to India, contributing $32.9 billion (27.7%) of India’s total inward remittances in 2023-24, according to Reserve Bank of India (RBI) data.
The 3.5% remittance tax will directly impact non-US citizens, including green card holders, H-1B and F-1 visa holders, and other foreign nationals earning income in the US. For instance, students with work-related income from gigs or part-time jobs will also face the tax when sending money to India after completing their studies.
Key Details of the Remittance Tax Provision
The Excise Tax on Remittance Transfers has several critical components:
- Applicability: The tax applies only to non-US citizens, including green card holders, H-1B and F-1 visa holders, and other non-residents with US-based income or assets. US citizens are exempt and can claim a tax credit if the tax is collected, provided they use verified remittance providers.
- Rate Reduction: Originally proposed at 5%, the tax rate was lowered to 3.5% following concerns from immigrant communities, particularly Indians, who form a significant portion of the US foreign-born population.
- Effective Date: The tax will take effect on January 1, 2026, giving affected individuals and financial institutions time to prepare.
- Regulatory Oversight: Money transfer companies must report transactions exceeding $5,000 daily, increasing scrutiny and compliance requirements. Stricter Know Your Customer (KYC) regulations may delay transfers for some users.
Impact on Indian Immigrants in the US
With over 2.9 million Indian immigrants in the US as of 2023, India ranks as the second-largest foreign-born group after Mexicans, constituting 6% of the 47.8 million foreign-born residents, according to the Migration Policy Institute. The US is the second-most popular destination for Indian migrants after the United Arab Emirates, making the remittance tax particularly significant for this community.
The 3.5% tax will increase the cost of sending money to India, affecting individuals who regularly support families or invest in assets like Non-Resident External (NRE) accounts or India’s premium real estate market. Sudarshan Motwani, Founder & CEO of BookMyForex, emphasized the tax’s impact on Indian workers: “These people have gone to the US for better prospects to support their families back home. They will all be subjected to the new 3.5% tax.”
Tax experts warn that the tax could discourage remittances, potentially pushing some funds into informal or unregulated channels like grey or black markets. Lloyd Pinto, Partner at Grant Thornton Bharat’s US Tax division, predicted a short-term spike in remittances before January 1, 2026, as individuals attempt to transfer funds before the tax takes effect. However, he also noted a potential shift to informal channels, which could complicate regulatory oversight.
Economic Ripple Effects on India and Beyond
The 3.5% remittance tax could have far-reaching consequences for countries reliant on US remittances, including India, Mexico, and El Salvador. India, receiving $129 billion in foreign remittances in 2024 (28% from the US), could face a 10%–15% reduction in remittance inflows, equating to a $12–18 billion annual shortfall, according to the Global Trade Research Initiative (GTRI). This decline could impact India’s foreign exchange reserves and families dependent on these funds.
The tax may also affect corporate mobility programs, as employees relocated to the US may negotiate the additional 3.5% cost into their relocation packages or tax equalization arrangements, increasing salary costs for companies. Since the tax is classified as an excise tax, it may not qualify for foreign tax credits under the India-US tax treaty, adding to the financial burden.
Kuldip Kumar, Partner at Mainstay Tax Advisors, noted that the tax aims to protect US dollar outflows and encourage local investment while generating additional revenue. However, it could deter foreign workers from maintaining assets or employment in the US, potentially impacting the mobility of skilled professionals, particularly in tech-heavy industries where Indian H-1B visa holders are prominent.
Implications for US Investments and ESOPs
A critical concern is whether the remittance tax will apply to investment proceeds, such as those from US stocks or Employee Stock Option Plans (ESOPs). Kumar explained that if an individual invests through a US bank account, realizes sale proceeds, and then remits the funds to India, the 3.5% tax could be triggered. Similarly, employees receiving stock from a US-based parent company under an ESOP may face the tax when selling shares and transferring proceeds to India.
This raises questions about tax credits under the India-US tax treaty. Since the remittance tax is an excise tax, it may not be eligible for credits against Indian tax liabilities, creating an additional cost for investors. Kumar highlighted that this could discourage Indian investment in US markets, though he noted that further clarifications are needed, as the US may not want to deter inward investments.
Liberalised Remittance Scheme (LRS) Context
The tax comes at a time when India’s Liberalised Remittance Scheme (LRS), introduced by the RBI in 2004, has seen reduced outflows. The LRS allows resident individuals, including minors, to remit up to $250,000 per financial year for permissible transactions, with no restrictions on frequency. However, student remittances under the LRS dropped to a five-year low of $2.92 billion in FY2025, indicating reduced outflows, possibly due to economic or regulatory factors.
The new US remittance tax could further complicate cross-border financial planning for Indian residents and non-residents alike, potentially reducing the attractiveness of sending money to India under the LRS.
Expert Opinions and Strategic Responses
Tax experts have voiced concerns about the tax’s broader implications. CA Manoj K Pahwa, a FEMA & International Tax Consultant, suggested that the tax could discourage Indians from sending as much money home, prompting increased investments in the US instead. Manish Garg, Lead-Transfer-Pricing and Litigation at AKM Global, warned that India could see a decline in foreign exchange inflows as remittances become costlier.
Financial institutions face increased compliance burdens, with stricter KYC requirements and reporting obligations for transactions over $5,000. This could delay transfers and increase operational costs for money transfer providers.
The Indian government has not yet assessed the tax’s impact or decided whether to seek relief from the US, according to government sources cited by The Hindu. However, the RBI’s data underscores the US’s critical role as India’s largest remittance source, suggesting that diplomatic discussions may emerge if the bill progresses.
What Should NRIs Do?
For Indian immigrants, options are limited. The 3.5% tax will reduce the value of remittances, particularly for those sending money regularly. Strategies to mitigate the impact include:
- Pre-emptive Transfers: Sending larger sums before January 1, 2026, to avoid the tax.
- US Investments: Redirecting funds to US-based assets to defer or avoid the tax, though this may trigger the tax upon repatriation.
- Negotiation with Employers: For relocated employees, negotiating compensation packages to offset the tax cost.
However, experts caution against using informal channels to bypass the tax, as this could lead to legal and regulatory risks.
Global and Domestic Reactions
The bill has sparked debate among immigrant communities and policymakers. While the reduction from 5% to 3.5% offers some relief, the tax remains a concern for countries like India, which rely heavily on remittances. The Indian government’s silence on the issue suggests a cautious approach, possibly awaiting Senate outcomes or further clarifications.
Globally, countries like Mexico and El Salvador, which also depend on US remittances, may face similar economic challenges. The tax could reshape migration and financial flows, potentially discouraging foreign workers from pursuing opportunities in the US.
Conclusion
The One Big Beautiful Bill Act and its 3.5% remittance tax represent a significant shift in US financial policy, with profound implications for Indian immigrants and India’s economy. As the bill awaits Senate approval, NRIs and financial institutions must prepare for increased costs and compliance requirements. While the tax aims to protect US economic interests, its impact on global remittances and investment flows underscores the need for careful monitoring and strategic planning.
FAQs
1. What is the 3.5% remittance tax in the ‘One Big Beautiful Bill Act’?
The 3.5% remittance tax, officially termed the “Excise Tax on Remittance Transfers,” is a provision in the One Big Beautiful Bill Act passed by the US House of Representatives on May 22, 2025. Effective from January 1, 2026, it imposes a 3.5% tax on money sent abroad by non-US citizens, including green card holders, H-1B and F-1 visa holders, and other foreign nationals. US citizens are exempt and can claim a tax credit if the tax is collected, provided they use qualified remittance providers.
2. Who will be affected by the 3.5% remittance tax?
The tax applies to non-US citizens living in the US, including:
Foreign individuals transferring proceeds from restricted stock units (RSUs) or other US income, such as stock sales or Employee Stock Option Plans (ESOPs).
This includes Indian immigrants, who form the second-largest foreign-born group in the US, with 2.9 million as of 2023.
Green card holders
H-1B and F-1 visa holders
Non-residents with US-based income or assets
3. How will the remittance tax impact India’s economy?
India, receiving $32.9 billion (27.7%) of its 2023-24 remittances from the US, could face a 10%–15% reduction in inflows, equating to a $12–18 billion annual shortfall, per the Global Trade Research Initiative. This could dent foreign exchange reserves and affect families reliant on remittances. The tax may also push some funds into informal channels like grey or black markets, complicating regulation.
4. Can the remittance tax affect US investments or ESOPs?
Yes, the tax may apply to proceeds from US investments, such as stock sales or ESOPs, if the funds are remitted to India. For example, if an individual sells US stocks or ESOP shares and transfers the proceeds from a US bank account to India, the 3.5% tax could be triggered. As an excise tax, it may not qualify for foreign tax credits under the India-US tax treaty, increasing costs for investors.
5. What can NRIs do to mitigate the impact of the remittance tax?
Non-Resident Indians (NRIs) can consider:
Negotiating with employers to offset the tax through relocation packages or tax equalization arrangements.
Transferring larger sums before January 1, 2026, to avoid the tax.
Investing in US-based assets to defer remittances, though repatriation may still incur the tax.
Experts advise against using informal channels to bypass the tax due to legal and regulatory risks. The bill awaits Senate approval, expected in June or July 2025, and further clarifications are pending.
