The United States’ recent decision to impose a 1 per cent tax on remittances sent abroad by non-citizens, set to take effect on January 1, 2026, is poised to significantly impact India the world’s largest recipient of remittances. In 2024 alone, India received a record $129 billion in remittances, with nearly $32 billion, or 27.7 per cent, originating from the US.
While the original proposal suggested a 5 per cent tax, the Senate scaled it down to 1 per cent. However, even this reduced rate is expected to pose challenges for Indian expatriates and their families back home. Analysts estimate that the tax could lead to an annual loss of around $500 million in formal remittances to India. In more severe projections, a 10–15 per cent drop in remittance inflows could result in a $12–18 billion shortfall, weaken the rupee by $1–1.5 against the US dollar, and reduce household spending.
The effects will be felt most acutely in states such as Kerala, Uttar Pradesh, and Bihar, where foreign remittances are lifelines for millions of households. These funds are commonly used for essential needs such as education, healthcare, housing, and daily consumption. For instance, under the new rule, a $100 transfer would incur a $1 tax, further reduced by transaction fees, shrinking the final amount received.
The tax applies only to transfers via cash, money orders, cashier’s checks, and similar instruments above $15. Transfers via bank accounts or US-issued debit/credit cards are exempt, as are remittances by US citizens. Nonetheless, many Indian H-1B visa holders, green card holders, international students, and temporary workers key sources of remittances may be affected, particularly those relying on informal or physical channels.
There is also concern that the tax could push some remitters toward informal or less transparent avenues, increasing the risk of fraud and reducing regulatory oversight.
Though the 1 per cent levy is less severe than earlier proposals, it still raises the cost of sending money home, with potential ripple effects across India’s economy. As global economic uncertainties persist, this development presents a notable challenge for India and its diaspora.
