Proposed US Remittance Tax Sparks Concerns Among Indian Diaspora and Experts

The proposed 5% US excise tax on remittances by non-citizens has alarmed the Indian diaspora and experts, citing discrimination and economic impacts. Targeting visa holders and green card holders, the tax excludes US citizens. India, the largest recipient of US remittances ($32.9 billion in 2023–24), could see reduced foreign exchange reserves and strained bilateral ties. Critics warn it may deter global talent, increase compliance burdens, and encourage informal channels. The proposal remains under discussion, with potential global and economic repercussions.

A recent proposal by the United States to impose a 5% excise tax on cross-border remittances sent by non-citizens has raised significant concerns among the Indian diaspora, policymakers, and tax experts. The measure, part of former President Donald Trump's "The One, Big, Beautiful Bill," could have far-reaching implications for Indian professionals who regularly send financial support to their families or invest in their home country.

Concerns Over Discrimination

Tax experts and policymakers have raised concerns about the discriminatory nature of the proposed tax. Akhilesh Ranjan, a former member of India’s Central Board of Direct Taxes (CBDT), highlighted that the levy does not constitute a tax on income and may not fall under the Double Taxation Avoidance Agreement (DTAA) between India and the US. This would mean non-citizens may not be eligible for tax credits under the agreement.

"This is a discriminatory measure targeting non-US citizens," Ranjan stated. He also pointed out that the US had previously requested India to withdraw its equalization levy on grounds of discrimination, suggesting that India should address this issue with equal urgency. Additionally, Ranjan warned that this tax could impact foreign-exchange reserves if it discourages formal remittance channels.

Reactions from Government and Experts

While Indian government officials have maintained a cautious stance, describing the tax as merely a proposal at this stage, experts have warned of its potential consequences. Sandeep Jhunjhunwala, a partner at Nangia Andersen LLP, noted the disproportionate impact on lawful immigrants, including green card holders and work visa holders. "There is ambiguity over whether the exemption applies to those with a Social Security number or only to US citizens," he added.

Jhunjhunwala further cautioned that if implemented, the tax could deter international talent and investment in the United States, strain diplomatic relations, and create additional compliance challenges for individuals and businesses alike.

Concerns Among the Indian Community

Many Indians working in the US, particularly those in the information technology (IT) sector, have expressed frustration over the proposed tax. An Indian professional employed at an IT services firm in New Jersey described the measure as "unfair," pointing out that non-citizens already pay taxes in the US. "It feels unjust to pay extra just to use our money as we see fit," he remarked.

Additionally, experts have warned that the tax could drive people toward informal remittance channels, adding to the compliance burden on financial institutions and affecting bilateral relations between the two nations.

Potential Fallout

If enacted, the 5% remittance tax could have significant implications for the Indian community in the US, as well as for India's economy, which relies heavily on remittances for foreign-exchange reserves. The measure also risks making the US a less attractive destination for global talent, particularly in high-demand sectors like technology.

For now, the proposal remains under discussion, but its potential ripple effects have already sparked a heated debate among policymakers, economists, and affected communities. As the conversation unfolds, its outcome will likely shape not only the future of remittance flows but also the broader dynamics of US-India relations.