Sending a refund dwelling from the US might flip costlier with the proposed “One Large Lovely Invoice” by the US, together with a 3.5% tax on all remittances by non-citizens.
Whereas the US has turn out to be the highest supply of remittances to India, accounting for 27.7% of the overall inward remittances of $118.7 million in 2023-24, for now the federal government isn’t too nervous in regards to the proposed invoice. The federal government can also be more likely to perform an evaluation of the affect of the tax proposal on remittances from the US.
“We’re preserving an in depth tab on the developments with regard to the invoice. For now, it’s not a significant supply of fear although India will get a considerable amount of inward remittances,” famous an official supply. They additional identified that a big a part of the remittances are financial savings or funds made by Indians dwelling overseas to their households in India and that is unlikely to be impacted attributable to a tax, though the associated fee for the particular person concerned will definitely rise.
Remittances play a vital function in financing the merchandise deficit and in addition assist construct a buffer to soak up any exterior shocks. In line with the World Financial institution, India has continued to stay the highest recipient of remittances since 2008, with its share in world remittances rising from round 11% in 2001 to about 14% in 2024. “Going ahead, remittances to India are more likely to stay elevated and are projected to extend to round $160 billion in 2029,” an article within the Reserve Financial institution of India’s month-to-month bulletin for Could 2025 had famous.
The US had initially proposed a 5% tax on remittances as a way to guard in opposition to greenback outflows. It has, nevertheless, determined to cut back it to three.5% now. If enacted, the tax will apply on remittances from January 1, 2026. It has already been handed by the US Home of Representatives and is seen to replicate US President Donald Trump’s financial imaginative and prescient.
A report by Grant Thornton Bharat stated that this could affect any outbound remittances by non-citizens similar to Inexperienced Card holders or different visa holders. “Remittance switch suppliers should acquire and remit the tax quarterly to the Treasury and have secondary legal responsibility for unpaid taxes. Transfers despatched by verified US residents or nationals by certified suppliers who’ve agreements with the Treasury to confirm senders’ standing are exempt,” it defined, including {that a} refundable tax credit score is on the market for taxpayers with legitimate Social Safety numbers.
Sandeep Jhunjhunwala, M&A Tax Accomplice at Nangia Andersen identified that by exempting solely US residents and nationals making remittance by certified remittance switch supplier, the proposal disproportionately impacts tens of millions of lawful immigrants together with inexperienced card holders, work visa holders, and non-resident aliens, lots of whom keep ongoing monetary obligations of their dwelling nations.
He additional identified that along with private remittances, the supply might additionally have an effect on compensation practices. Many international nationals obtain restricted inventory models (RSUs) as a part of their pay packages. When these RSUs vest and are bought, the gross sales proceeds are sometimes transferred abroad to dwelling nation, for private use, household assist, or funding.
“Underneath the proposed remittance tax, such transfers even of post-tax proceeds might entice the levy, including a layer of value to already-taxed earnings,” Chaufla stated. If enacted, this provision dangers diminishing the US’ attractiveness as a vacation spot for worldwide expertise and funding, whereas additionally elevating diplomatic sensitivities and rising compliance challenges for each people and employer enterprises, he additional warned.
