US Bill proposes 5% tax on foreign money transfers: Why NRIs are worried

A proposed law in the United States is causing unease among Indian residents and non-resident Indians (NRIs) living in America, as it could make sending money back home more expensive. The draft legislation, informally titled “The One Big Beautiful Bill”, proposes a 5% tax on all international money transfers made by non-US citizens.

 

If the Bill is passed, the tax would apply to individuals on non-immigrant visas such as H-1B and F-1, green card holders, and undocumented immigrants. Transfers made through platforms like Western Union, PayPal, or regular banks would be taxed at the point of transfer.

 

The proposal has not yet passed Congress, but if approved, it could take effect as early as July 2025.

 

 

This sems from a longstanding political push by hardline Republicans to curb undocumented immigration and redirect outbound capital flows. Originally floated by Trump in 2016 as a way to fund the Mexico border wall, the idea has resurfaced with broader scope—now targeting even legal residents such as H-1B and F-1 visa holders, as well as green card holders. 

 

India likely to be hit hardest

 

India is the world’s largest recipient of remittances, receiving $129 billion in 2023, according to the Reserve Bank of India (RBI). The US accounted for roughly $32 billion of this, making it the single largest source country. A flat 5% tax on such transfers could cost Indian recipients around $1.7 billion annually.

 

According to India’s Ministry of External Affairs, nearly 4.5 million overseas Indians live in the US. This includes about 3.2 million persons of Indian origin.

 

Remittances are commonly used to support family members in India—especially for education, medical care, or daily household expenses. They are also a key source of funds for real estate and market investments, particularly in cities like Mumbai, Hyderabad, and Kochi that attract high volumes of NRI buyers. 

How will it work if implemented?

Tax Rate: A 5% levy on all international remittances sent by non-U.S. citizens.

 

Affected Individuals: Non-immigrant visa holders (e.g., H-1B, F-1), green card holders, and undocumented immigrants.

 

Collection Mechanism: The tax will be automatically deducted at the point of transfer by services like Western Union, PayPal, or even banks.

 

Implementation Timeline: If passed, the tax could come into effect as early as July 2025.

 

Why NRIs are worried 

< Indian families could lose an estimated $1.7 billion each year due to the tax

< Funds typically used for education, healthcare and elderly care could be affected

< NRI investment in Indian real estate and stocks may reduce

< Transfer services would need to collect and deduct the tax at source  The new provision would mean that for every ₹1 lakh (in dollar terms) sent home, ₹5,000 (in dollar terms) would go to the IRS before reaching the intended recipients. This change affects everyday family support, property purchases, educational expenses, and more. Until now, remittances were not subject to US taxation, making this a stark policy reversal. 

If passed, the tax could:

Cost Indian recipients an estimated $1.7 billion annually

Strain middle-class and lower-income households who rely on funds for education, healthcare, or daily needs

Lead to reduced financial support for aging parents or dependent relatives

 

The proposal has triggered heated reactions on platforms like Reddit. One user wrote, “Are the US lawful temporary residents also subjected to this 5% robbery? Or only undocumented, illegal immigrants? Would it also apply to US-originated outbound international transfers involving a source and destination bank account owned by the same person?”

 

The user added, “This is really a NEW form of stealing people’s hard-earned money… by a rapacious, unaccountable US government.”

 

Another user commented, “People with legal status are not impacted by this. So H1, F1 etc don’t have to worry about this. As long as you can prove legal status to the remittance service provider you should be fine.”

 

There is also confusion about how the Bill defines a "US national" and whether the 5% tax might eventually deter even US citizens from making international transfers. “Adding the 5% tax as a tax credit will also discourage US citizens to send money abroad, or spend it abroad,” said a user.