U.S. Remittance Tax Proposal: Evolving Rates and Implications for NRIs Sending Money to India

The U.S. Congress is presently debating a remittance tax under the “One Big Beautiful Bill Act” (also referred to as part of the SHIELD Act). This proposal has drawn significant attention from the NRI community in light of its potential impact on cross-border fund transfers. Below is a detailed overview of how the proposal has evolved, its current provisions, and what NRIs should consider moving forward.

When first introduced in the House of Representatives, the bill proposed a 5 per cent excise tax on all outbound remittances from the U.S. This prompted immediate concern among NRIs, given the substantial cost it would impose on transfers to India, which is among the most common remittance corridors

Subsequently, during the House legislative process, the rate was reduced to 3.5 per cent, offering some relief yet still posing a notable financial burden.

Most recently, the U.S. Senate further reduced the proposed tax to 1 per cent. This reduction was announced in the Senate’s revised draft of the “One Big Beautiful Bill Act” and is viewed as a significant concession to diaspora concerns

Under the current Senate draft, the one percent remittance tax will apply only to cash-based remittances—including cash, money orders, cashier’s checks, and similar physical instruments. Transfers originating from U.S.-based bank accounts or those funded via U.S.-issued debit or credit cards are explicitly excluded and will not be subject to tax.

The tax is scheduled to take effect on remittances made after December 31, 2025, giving individuals and financial institutions sufficient time to adjust.

The proposed tax targets non-U.S. citizens, including green‑card holders, H‑1B visa holders, international students, and other non-citizen visa holders. U.S. citizens are not subject to this tax. Approximately 2.9 million Indians currently reside in the U.S.; in fiscal year 2023–24, around USD 32 billion—or roughly 28 per cent of India’s inward remittances—originated from the U.S.

Consider a hypothetical remittance of USD 10,000 sent via cash or money order:

• Under the House version (3.5 per cent), the tax would have been USD 350.
• Under the current Senate version (1 per cent), the tax reduces to USD 100, lowering the financial burden substantially.

The Senate draft offers clear exemptions for electronic transfers through banks and card-based systems. These remain outside the scope of the tax. Discussion continues regarding possible rebates or offsets for filers of U.S. tax returns, though no firm language has yet been included. Final details on eligibility for credits and compliance mechanisms will emerge as the bill progresses.

1. Choose Electronic Transfers: Conduct transfers through U.S. banks or card-based systems to avoid the 1 per cent tax.
2. Plan Timing: The law is not yet enacted. Plan significant remittances before December 31, 2025, to avoid any risk.
3. Maintain Documentation: Preserve proof of source of funds, remittance instruments, and tax filings to ensure compliance and safeguard against potential audits.
4. Seek Professional Advice: Consult tax advisors in both the U.S. and India to evaluate your specific circumstances, especially if credit eligibility is included in the final law.

This progressive reduction—from 5 per cent to 3.5 per cent, and now 1 per cent—demonstrates the effectiveness of diaspora feedback. The resulting bill aims to strike a balance between generating federal revenue and minimizing disruption to remittance flows essential to the Indian economy.

Nonetheless, the focus on cash-based remittances and targeting non-citizens underscores the U.S. government’s intent to regulate cross-border money flows more tightly. NRIs should proactively adapt their remittance strategies to align with the final provisions.