Desi diaspora set to take $1.6 billion hit as US plans bill to tax remittances

Its official title is — The One Big Beautiful Bill — but it contains a sting for lakhs of Indians in the US, be they non-immigrant visa holders (like H-1B) or green card holders. Once this bill is enacted, anyone who is not a US citizen and who remits money outside the country will have to pay a remittance tax of 5 per cent.Lately, the US has emerged as the largest source country for remittances into India, attributed to both the size of Indian diaspora and their income levels in America. According to Indian foreign ministry, there are nearly 45 lakh overseas Indians in the US, including nearly 32 lakh PIOs.According to a remittance survey published by RBI in March, of the total remittances of $118.7 billion in 2023-24, nearly 28 per cent or $32 billion were from the US. If this bill is enacted, even if we assume the remittance figure from the US to be constant, the Indian diaspora will end up paying $1.6 billion as remittance tax.‘The One Big Beautiful Bill’ calls for tax equal to 5 per cent of remittance amountThe bill is the proposed tax plan released recently by the US House Ways and Means Committee. Tucked away in page 327 of the 389 page document is a section on remittances, which calls for a ‘tax equal to 5 per cent of the amount of such transfer’. As no exemption threshold limit has been set, it would also impact transfers of small denominations. It adds that this shall not apply to any remittance-transfer where the remittance transfer provider is a ‘qualified remittance transfer provider’ and the sender is a ‘verified US sender’. The latter is then defined to mean a citizen or national of the US.In other words, if an H-1B holder or an L-1 (who is in US on an intra company transfer) or even a green card holder remits money to his family (say parents) in India, or remits money for the purpose of investments – say in Indian securities or real estate, the remittance will be subject to a 5 per cent withholding by the transfer provider (say US bank).The House of Representatives aims to pass this bill in May itself and it will then move to the Senate. According to cross-border investment experts, the bill is likely to sail through and may be law by June-July. They are advising the Indian diaspora to try and remit larger funds in the coming weeks to escape the remittance tax.