Hyderabad: A proposal to levy five per cent on all outbound remittances made by non-citizens in the United States has prompted angry reactions from the US-based Indians, as it is expected to increase the cost of money transfers to their families in the country.
The move will particularly affect Indians working in the US with temporary visas and green cards. Once the Bill was legislated, an NRI will have to forgo $50 as tax for every $1,000 sent home. However, a tax credit could be available against this deducted tax.
India is the largest recipient of remittances in the world with a total inflow of $118.7 billion in FY24 and is expected to go up to $128 billion in FY25. The US was the top source with nearly 28 per cent in FY24 or over $33 billion in FY24 and $35.84 in FY25. As per the new provision, US NRIs will have to pay $1.79 billion as taxes on their remittances.
M. Anitha, a native of Hyderabad, who is currently living in Dallas, sends money to her aging parents every month. “They essentially rely on the money that I send them. But now, with this five per cent tax, it feels like I am being penalised for supporting my family. We’re already paying taxes here, and an additional five per cent tax will be very heavy on us.”
Long-time US residents like Sreekar Reddy, who is originally from Nizamabad, feels that the remittance tax adds more stress on him for helping his family back home.
On Blind, an anonymous forum frequented by tech workers, users dissected the implications of the Bill’s implications and poked holes in its logic. “This Bill clearly underestimates the Indians,” a user wrote. “They’re just going to send the money to a US citizen, who is related to them, and have them transfer it to their family instead.” Another user joked, “Now an American can make money by being a middleman and charge 2.5 per cent” commission for facilitating money transfer.
Another user suggested that the move could fuel informal money transfer networks. “Hundi will be more popular,” read a post, adding, “This is just solidifying the decline of the dollar.”
Some flagged the risk of drawing IRS scrutiny if the workaround involved routing money as “gifts,” which are themselves taxable beyond a threshold.
Among those caught in the grey zone is Rahul, an Indian professional working out of Hyderabad for a US-based firm, who receives a part of his compensation in the form of US stocks.
“Some of us are paid in US stocks as part of our income. We already pay income-tax when it’s credited, capital gains when we sell, and lose money again on the USD to INR conversion. If this five per cent is also added just to bring money home, it’s absurd.”
“We’re talking about large sums. People calculate down to fractions when converting currencies. Something like this could make people stop investing altogether. Or sell everything before the law solidifies, just to avoid the penalty,” he said.
Investors and professionals seem to agree on one thing that the proposal, if passed, will alter remittance behaviour. “I have close to $1 million in US stocks. I’ll need to shift it to India ASAP before this hits,” wrote a user on Blind.
Some believe that the Bill won’t survive in its current form. “Did you read the entire Bill? Most of it is not passing without changes.”
Others worry that the damage is already done. “Dumb move. Many offshore investors are gonna pull out.”
Whether the bill passes in its current form or not, the reactions have already revealed the stress lines. People are calculating, anticipating, and adjusting. Clarity may be weeks away, but consequences are already in action.
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