US May Tax Money Sent Home by Immigrants, Here's What That Means for NRIs

A proposal is being considered into a new tax bill in the United States which may soon start hitting Non-resident Indians (NRIs) in money transfers they send back home.

On May 12, U.S. House Republicans introduced a bill that would place a 5 per cent tax on all international remittances made by non-citizens, regardless of the amount or the purpose. If passed, this would apply to everyone from H-1B visa holders to green card applicants and undocumented workers, anyone not holding U.S. citizenship but sending money abroad.

For NRIs, this would be more than just some technical tax tweak. India receives the most remittances of any country in the world, around $83 billion annually, and a substantial portion of that comes from Indians living in the U.S. According to RBI data, roughly $33 billion of that came from the U.S. alone in FY 2023-24.

What would this mean for NRIs?

Says CA Ashish Niraj, Partner at A S N & Company, “Earlier if any NRI used to remit any money to India, only the relevant bank charges were deducted, and there was not any new tax cut. But now once the bill is passed, whatever amount is being sent here will attract 5 per cent remittance tax, consequently remittances may be reduced by 5 per cent overall.”

Until now, U.S. law did not tax these personal money transfers. You would pay your income taxes, and whatever you sent home, whether it was for a parent’s medical care, a sibling’s education, or a property purchase, was your business. But under the proposed bill, every $100 sent to India would see $5 taken by the IRS before it even crosses the border.

“This would essentially be a form of double taxation,” says CA Niraj. “The income is already taxed once in the U.S. Now if you want to remit savings from that income, you’ll be taxed again."

Would there be a tax credit for this cut? CA Niraj states that at this stage it's not clear whether the taxpayer will get Tax Credit for this or not, if tax credit is available to him just like TCS here, then NRI’s net impact will be NIL, otherwise it will be a burden.

A vote in the House is expected by May 26, with the aim of turning it into law by July 4. That gives NRIs, particularly those who regularly send money home, a tight window to plan.

What happens if this becomes law?

Once in effect, the tax would be collected at the point of transaction by financial institutions and money transfer companies, essentially deducted before the money leaves your U.S. account. It applies to all legitimate channels, including NRE/NRO accounts, wire transfers, and third-party remittance platforms.

There’s currently no mention of a minimum amount. So whether you send $100 or $10,000, the 5 per cent cut applies.

“This isn’t just a policy change, it alters how NRIs approach financial support to families in India,” said CA Niraj. “It might not stop remittances altogether, but it will definitely change how people send money. Some may start bundling remittances into fewer, larger transactions. Others may try to shift to credit card-based purchases directly from the U.S.”

Are there ways to work around it?

So far, the bill doesn’t carve out any exemptions, even for purpose-based remittances like medical expenses or education. That makes strategic planning tricky. But CA Niraj points out a few practical adjustments that some NRIs might consider:

Credit card payments from the U.S. directly to Indian merchants for things like groceries, school fees, or utility bills could be an alternative, at least for certain kinds of support. These will not be technically counted as remittances, though it’s still unclear if the law will try to rope in such payments.

Advance planning of major transfers could help in the short term. “Any big remittance required for buying Property, Market Investments etc., can be remitted within this one month or so period so as to save tax on it,” CA Niraj states.

Still, most NRIs will find it hard to avoid this cost entirely if the bill goes through.

What's still unclear?

For one, it's not certain whether senders will be able to claim a tax credit or deduction for the remittance tax, something that could ease the blow if allowed. Without such provisions, NRIs could be paying taxes twice: once on income, and again on the act of transferring savings.

For now, everything hinges on how fast the legislation moves. If passed by both chambers and signed into law, the tax could take effect within a month.

The bottom line? It’s not panic time, but it is planning time. For thousands of Indian-origin families spread between continents, even a 5 per cent cut can feel like a lot when every dollar sent home is already spoken for.