US Proposes 5% Remittance Tax on Non-Citizens: Impact on Indian Diaspora

A new bill introduced by US House Republicans is stirring concern among immigrant communities, especially Indians living and working in the United States. The proposed legislation seeks to impose a 5% excise tax on all international remittances sent by non-US citizens, including those on H-1B, F-1, and other visa categories. With Indians being one of the largest contributors to remittances globally, this measure could substantially affect both personal remittances and investment-related outflows.

Why in News?

A bill titled “The One Big Beautiful Bill” was introduced in the US Congress. It includes Section 112105, proposing a 5% excise tax on international remittances made by non-citizens. Indians, who sent over $23 billion in remittances from the US to India in 2023, could face a significant impact. The proposal is seen as a revenue-generating measure but has sparked debate and criticism over its discriminatory and economic implications.

Who Will Be Affected?

• H-1B visa holders
• F-1 student visa holders
• Green card holders
• Other non-resident Indians (NRIs) and non-citizens
• Even post-tax investment proceeds transferred abroad

Key Provisions

• 5% excise tax on any remittance sent outside the US by a non-citizen.
• Tax is to be collected by remittance service providers.
• Providers must remit collected taxes quarterly to the US Treasury.

Impact on Indians in the US

• For every $1,000 sent, $50 would be taxed.
• May discourage formal remittance channels, encouraging informal or unregulated transfers.

Could affect,

• Monthly family support
• Investment flows to India
• Remittances from RSU (Restricted Stock Units) sales
• Pressure on US employers to raise salaries to compensate for the tax.

Experts’ Opinions and Criticism

• Akhilesh Ranjan (ex-CBDT, PwC): “This discriminates against non-citizens contributing equally to the US economy.”
• Sandeep Jhunjhunwala (Nangia Andersen LLP): “Impacts legal immigrants; unfairly excludes US nationals.”
• Ajay Rotti (Tax Compass): “It’s a policy shift that could influence foreign worker inflows.”
• Amarpal Chadha (EY India): “Could force Indians to reconsider the frequency and volume of remittances.”
• Indian Govt Official: “Could amount to a tax treaty override, unfavorably affecting international tax agreements.”