How the US Remittance Tax Plan Could Impact Indian Households and the Rupee: Key Insights from GTRI

New Delhi: A proposed 5% tax on remittances sent abroad by non-citizens in the US has raised serious concerns in India. This tax could affect the wallets of many Indian households and the overall stability of the rupee, according to the Global Trade Research Initiative (GTRI).

This tax is part of a larger legislative effort known as "The One Big Beautiful Bill," introduced in the US House of Representatives on May 12. It would apply to money transfers made by non-US citizens, including green card holders and temporary workers like those on H-1B or H-2A visas. Notably, US citizens would be exempt from this tax.

GTRI warns that if this tax becomes law, India could see billions lost in remittance inflows. In the fiscal year 2023-24, India received about $120 billion in remittances, with nearly 28% coming from the US. According to GTRI founder Ajay Srivastava, a 5% tax could substantially increase the cost of sending money back home. He estimates that remittances could drop by 10-15%, resulting in a potential shortfall of $12-18 billion for India each year.

This situation could also strain the supply of US dollars in India’s foreign exchange market. Srivastava predicts that the value of the rupee might weaken by Rs 1-1.5 against the dollar if the tax has its full impact. This depreciation could prompt the Reserve Bank of India to step in more frequently to stabilize the currency.

Many families in states like Kerala, Uttar Pradesh, and Bihar depend on remittances to afford essentials such as education, healthcare, and housing. A drop in these funds could severely impact household spending, especially when the Indian economy is already facing global uncertainty and inflation.

Experts also highlight a broader concern. By taxing these global financial flows, the US risks disrupting vital avenues of development financing. This move could reduce income for households in poorer countries and weaken demand in economies already struggling with inequality and instability.

Interestingly, at the World Trade Organization (WTO), India has been advocating for lower costs on cross-border remittance flows. This latest development contrasts sharply with those goals.

In summary, the proposed US tax on remittances could have far-reaching effects, not just for Indian households, but also for broader economic stability. It’s a topic worth watching carefully. For further details, you can read more on the official WTO website.

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