Sending money to India? NRIs may pay Rs 30,000 extra as tax from 2026

Remittances are a crucial pillar of India’s economy, helping to bridge a significant portion of its merchandise trade deficit. In fact, net remittance inflows routinely cover nearly half of this gap. These inflows are not only steady but also consistently surpass India’s gross foreign direct investment (FDI), underscoring their importance as a dependable source of external funding.

According to World Bank estimates, Indian expatriates sent home a record $119 billion in 2023. The United States remained the top contributor, accounting for 27.7% of India’s total remittances in FY24 — approximately $33 billion.

Therefore, the new US tax proposal could impact millions of Indian families and the broader Indian economy. But this critical financial pipeline could soon face disruption. A bill passed by the US House of Representatives seeks to impose a 3.5% remittance tax on all foreign money transfers made by non-citizens, including H-1B holders, L1 visa employees, students on F1/J1, green card applicants, and temporary workers. If the U.S. Senate approves the bill, it will come into effect from January 1, 2026.

"US-based Indians sent $33 Bn back home in FY24. But from 2026, every dollar may attract an extra 3.5% remittance tax🤯. Non-citizens — H1-B holders, students-may have to pay this," TaxBuddy, income tax filing and ITR e-filing platform, noted.

A costly change for Indians

The proposed tax means that Indian residents in the U.S. would lose $3.50 for every $100 sent home. For someone transferring $10,000, this could mean an additional $350 lost to tax, directly affecting families in India who depend on these funds for education, healthcare, home expenses, and investments. The tax is intended as part of a broader strategy to reduce the U.S. fiscal deficit, but its ripple effects could reach far beyond American borders.

Why it matters for India

A proposed 3.5% tax on outward remittances by non-citizens in the US could generate nearly Rs 10,000 crore for the US government from Indian-origin senders alone — based on the estimated Rs 2.75 lakh crore sent from the US. But for Indian senders and their families, it means a direct hit to post-tax returns.

If enacted, the tax will apply to all foreign nationals in the US, including H-1B and L1 visa holders, green card applicants, international students, and temporary workers. Over 5 million Indian immigrants in the US could be impacted.

To put this in perspective: if an Indian sends Rs 1 lakh back home, only Rs 96,500 would actually reach the recipient’s Indian bank account — with Rs 3,500 siphoned off as tax to the US federal government. And that’s excluding transaction or bank transfer fees.

This proposal, aimed at reducing the US fiscal deficit, could significantly alter remittance dynamics and increase the financial burden on Indian workers and students in America.

Who will be affected?

According to MEA estimates, more than 2 million Indians live in the U.S., and they form one of the highest-earning NRI groups globally. Their remittances are not just family support—they drive consumer spending, fund NRE deposits, and contribute significantly to India's foreign exchange reserves.

The 3.5% tax could deter many from remitting regularly, potentially leading to an estimated $1.16 billion drop in remittance volumes from the U.S. alone. With a 2x multiplier effect, experts say this could cost the Indian economy a staggering Rs 19,886 crore in indirect impact—affecting sectors ranging from real estate to banking and retail.

What can NRIs do?

With the law not yet in effect, NRIs have a window to plan ahead:

Remit early: Transfers made before Jan 1, 2026, are not subject to this tax.

Monitor developments: The bill still needs Senate approval, expected in June–July 2025.

Watch for exemptions: It’s unclear if remittances toward education, medical needs, or salary transfers will be exempt. More clarification is expected post Senate deliberation.

What’s next?

If the bill becomes law, it could reshape how Indian families manage their finances across borders. NRIs may explore alternative transfer mechanisms or shift their remittance patterns. For now, it’s essential to stay informed and consider advancing any planned large-value remittances before the new tax kicks in.

For India, this looming tax may reduce one of its most resilient sources of dollar inflow, just when global volatility is already squeezing emerging economies.