The United States has proposed an excise tax on remittance transfers by levying a 5% excise tax on remittances. The proposal, which is yet to become law, is likely to impact India as it receives approximately $25 billion every year from the USSo, who would be affected if this proposal is enacted?
Experts suggest that if passed into law, the proposal is likely to affect visa holders such as, H-1B, F-1, green card holders, non-residents with US income or assets, and foreign nationals receiving restricted stock units (RSUs) or other US-sourced income who remit money abroad.
Tax experts in India believe that if the proposal becomes law, there could be a sudden reduction in the value of remittances for families abroad. It may also discourage foreign workers from maintaining assets or employment in the US. Furthermore, those working in the US may face greater compliance burdens, which could lead to more enforcement concerns for financial institutions and money transfer services.Raising alarm bells among Indian communities in the United States, the provision, which is part of a broader tax policy floated by the Republicans and linked to President Donald Trump’s economic agenda, suggests that only US citizens and nationals would be exempt.Given the large number of Indians working in the US, the country stands to be one of the hardest hit if the proposal becomes law.Interestingly, in 2023, Indians in the US sent home over $23 billion in remittances, according to World Bank data, making the United States one of India’s top sources of foreign income.”The measure is being framed by supporters as a way to raise revenue and discourage undocumented immigration,” said a tax expert dealing with Indians working in the US, who preferred to remain unnamed, adding, “This is a targeted financial penalty on immigrants.”The impact, as noted by a few experts, could also extend to non-resident Indians (NRIs) who have returned to India but still earn US income from investments, real estate, or restricted stock units (RSUs) from American companies. Thus, these transfers, if repatriated, could fall under the scope of this proposed 5% excise tax.“This proposal, if enacted, could cost a typical Indian family in the US hundreds or even thousands of dollars annually. It may also incentivise informal or underground money transfer systems. It will also increase the cost of doing business, and those hiring Indians will now have to factor this into the cost they pay to those employees,” said a tax expert working with an MNC that employs individuals in the US.Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP, said, “A new remittance tax proposal by the House Republicans could significantly impact NRIs and other foreign nationals living in the United States… This represents a notable shift in US tax policy, particularly for foreign workers who regularly send remittances to support their families abroad.”He added, “In addition to personal remittances, the provision could also affect compensation practices. Many foreign nationals receive RSUs as part of their pay packages. When these RSUs vest and are sold, the sales proceeds are often transferred overseas to the home country for personal use, family support, or investment. Under the proposed remittance tax, such transfers, even of post-tax proceeds, could attract the 5% excise levy, adding a layer of cost to already-taxed income. If enacted, this provision risks diminishing the United States’ attractiveness as a destination for international talent and investment while also raising diplomatic sensitivities and increasing compliance challenges for both individuals and employer enterprises.”Another expert Amarpal Chadha, Tax Partner and Mobility Leader, EY India, said, “The measure—if enacted—could place added financial pressure on Indian nationals working in the United States. Many may be forced to re-evaluate their remittance patterns, including the amount and frequency of remittances for the purpose of maintenance of family or investment in India.”Akhilesh Ranjan, former Member CBDT, now with PwC “This levy clearly discriminates against non-US citizens who are contributing to the US economy in the same way as US citizens do. It is interesting to note that it is proposed to be levied by the same country that found India’s Equalisation Levy to be discriminatory!”For now, the tax remains a proposal, not a law — and as the bill proposing the levy is likely to be taken up on 26th May, increasing the possibility of it advancing soon has already sparked concern in immigrant communities and among international policy analysts.
Source link
