US remittance tax plan may hit Indian households, rupee: GTRI

New Delhi | A proposed 5 per cent US tax on remittances sent abroad by non-citizens is raising alarm in India as it may hit Indian households and the rupee, economic think tank GTRI said on Sunday.

The provision is part of a broader legislative package titled 'The One Big Beautiful Bill' introduced in the US House of Representatives on May 12.

It targets international money transfers made by non-US citizens, including green card holders and temporary visa workers like those on H-1B or H-2A visas. The proposed levy will not be applicable to US citizens.

"The proposed US tax on remittances sent abroad by non-citizens is raising alarm in India, which stands to lose billions in annual foreign currency inflows if the plan becomes law," the Global Trade Research Initiative (GTRI) said.

For India, the stakes are high as the country received USD 120 billion in remittances in 2023-24, with nearly 28 per cent originating from the US, it added.

"A 5 per cent tax could significantly raise the cost of sending money home. A 10-15 per cent drop in remittance flows could result in a USD 12-18 billion shortfall for India annually," GTRI founder Ajay Srivastava said.

He said that the loss would tighten the supply of US dollars in India's foreign exchange market, putting modest depreciation pressure on the rupee.

"The Reserve Bank of India may be forced to intervene more frequently to stabilise the currency. The rupee could weaken by Rs 1-1.5 per US dollar if the remittance shock plays out fully," he added.

In states like Kerala, Uttar Pradesh, and Bihar, millions of families rely on remittances to cover essential expenses like education, healthcare, and housing.

Srivastava said that a sudden decline in these flows could hit household consumption hard, at a time when the Indian economy is already navigating global uncertainty and inflation pressures.

US remittance tax plan may hit Indian households, rupee: GTRI

By taxing the global capital flow, he said, the US could disrupt a key channel of global development financing, reduce household income in poorer nations, and weaken demand in economies already grappling with inequality and instability.

The development assumes significance, as India has proposed at the World Trade Organization (WTO) to lower the cost of cross-border flow of capital or remittances.