US proposed 5% tax on remittances to hit rupee: GTRI

The provision is part of a broader legislative package titled 'The One Big Beautiful Bill' introduced in the US House of Representatives on May 12.

New Delhi: The US President Donald Trump administration’s proposed 5 per cent tax on outward remittances may result in a $12-18 billion shortfall in dollar inflows to India annually, leading to depreciation in the value of the rupee, according to a think-tank.

As per the Reserve Bank of India (RBI) data, out of the total $118.7 billion remittance inflows to India in the financial year 2023-24, nearly $32 billion or 28 per cent came from the United States.

The proposed 5 per cent tax would significantly raise the cost of sending money from the US to other countries, including India. It will discourage Indians in the US from sending money back home.

“A 10-15 per cent drop in remittance flows could result in a $12-18 billion shortfall for India annually. That loss would tighten the supply of US dollars in India’s foreign exchange market, putting modest depreciation pressure on the rupee,” said Global Trade Research Initiative (GTRI) founder Ajay Srivastava.

The RBI may be forced to intervene more frequently to stabilise the currency. The rupee could weaken by Rs 1-1.5 per US dollar if the remittance shock plays out fully, he added.

The provision to impose taxes on remittance transfers is a part of the Trump administration’s signature legislation dubbed “One Big, Beautiful Bill”. A few of Trump’s fellow Republicans on Friday blocked the passage of the bill in the House of Representatives. The bill was introduced in the House of Representatives on May 12.

As per the provisions of the bill, any remittance that originates from the US to any other country, except by American citizens, would be taxed at 5 per cent.

The tax would be collected by banks and remittance service providers and forwarded quarterly to the US Treasury.

Persons of Indian origin constitute the third-largest Asian ethnic group in the US. About 54 lakh Indian Americans/Indian origin people reside in the US, as per the Ministry of External Affairs data. This includes over 20 lakh non-resident Indians (NRIs).

The new tax will impact all non-US citizens, including green card holders and temporary visa workers such as those on H-1B or H-2A visas.

“The pain wouldn’t stop at the exchange rate. In states like Kerala, Uttar Pradesh, and Bihar, millions of families rely on remittances to cover essential expenses such as education, healthcare, and housing. A sudden decline in these flows could hit household consumption hard—at a time when the Indian economy is already navigating global uncertainty and inflation pressures,” said Srivastava.