 "The proposed five per cent remittance tax was in the initial version of version of Donald Trump’s ‘One Big Beautiful Bill’ which was introduced in the US House on May 12. However, the US House while amending the bill cut the tax to 3.5 per cent. Now, the US Senate, which passed its version of the bill, further reduced the levy to 1 per cent. Let's take a closer look at what we know and why this is important. Reuters")
The United States has slashed remittances of those sending money back to India.
The US Senate in a huge relief to Non-Resident Indians (NRIs) cut the remittance tax from 3.5 per cent to 1 per cent.
This comes after Trump’s ‘One Big Beautiful Bill’ had initially proposed a 5 per cent tax on remittances – which caused concern among Indians in the United States on green cards and those holding H1-B and H-2A visas who send money home.
But what do we know? Why is this important?
Let’s take a closer look
What do we know
The tax was in the initial version of version of Trump’s ‘One Big Beautiful Bill’ which was introduced in the US House on May 12.
It proposed a remittance tax of 5 per cent – formally known as the ‘Excise tax on remittance transfers’.
However, the US House while considering the bill amended that tax down to 3.5 per cent.
Now, the latest version of Trump’s ‘One Big Beautiful Bill’ – which ran into trouble in the US Senate – has lowered the remittance tax from one per cent.
“There is hereby imposed on any remittance transfer a tax equal to 1% of the amount of such transfer”, the bill states.
“The tax imposed by this section with respect to any remittance transfer shall be paid by the sender with respect to such transfer,” the updated draft says.
The bill excludes transfers made from accounts at banks and other financial services.
Transfers made via credit or debit cards are also excluded.
It will only apply to those transferring money home via cash, money order, cashier’s cheque and other financial instruments.
Those using a ‘qualified remittance transfer service’ will also be exempt.
It will be applicable to transfers made after December 31, 2025.
Why is this important?
Because India received $120 billion in remittances from overseas in 2023-2024.
Of this, nearly a third, 28 per cent, was from the United States alone.
There are nearly 3 million Indians in the US.
Indians comprise the second-largest foreigner group in the country.
Many families in India rely on the money sent from relatives living and working in the United States.
Experts had predicted that a proposed 5 per cent tax would have caused a shortfall of $12 to 18 billion every year.
However, with a one per cent tax proposed, that number will be much lower.
Since most people use digital channels of sending money home, the vast majority of Indians in the US will likely not be affected.
This is also a good development as it shows the growing influence of the Indian-American community.
Still, some NRIs, those on H-1B visas and Indian students will likely be most impacted by the remittance tax.
It may also impact NRE accounts, purchases of property and those employees receiving stock options.
The bill was cleared late on Saturday night by Senate Republicans in a dramatic session.
The final tally, 51-49, came after a tumultuous night with Vice President JD Vance on hand in case he was needed to cast the decisive vote in case of a tie.
Tense scenes played out in the chamber as voting came to a standstill, dragging for more than three hours as holdout senators huddled for negotiations, and took private meetings off the floor.
In the end, two Republicans opposed the motion to proceed, joining all Democrats.
With inputs from agencies