New US remittance tax proposal: What it means for NRIs sending money to India #IndiaFinance

Among these proposals is the introduction of a 5% tax on remittances sent abroad, a measure that could directly impact thousands of NRIs who regularly transfer funds to their families in India.

While the bill is subject to a Senate review and further debate, a majority of US Republican Party leaders aim to finalize it by 4 July. If passed in its current form, the remittance transfer tax will take effect on transfers made after 31 December 2025.

Let’s break down what this proposed tax means, especially for NRIs on H1B, L1, or F1 visas and Green Card holders.

What is remittance transfer tax?

Under the proposed Chapter 36C, Section 4475 of the US’s Internal Revenue Code, a 5% tax will be levied on remittance transfers—that is, money sent by individuals from the US to recipients in other countries, including India.

This tax is not based on income but on the amount being transferred abroad. For example, if you send $10,000 to India, you could be required to pay an additional $500 in tax.

When will this tax apply?

If enacted, the remittance transfer tax would apply to all qualifying transfers made on or after 1 January 2026. The accompanying refund and reporting provisions will apply to tax years ending after that date.

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Who will be affected?

This tax primarily affects non-citizen residents in the US, including NRIs on H1B, L1, or F1 visas, Green Card holders, and any individual who is not a verified US citizen or national. If you fall into any of these categories and send money to India, you could soon be required to pay this new tax.

The proposed legislation provides a narrow exemption for verified US citizens and nationals and transfers made through “qualified remittance providers” who have agreements with the US’s Internal Revenue Service department to verify a sender’s citizenship status.

If a US citizen ends up paying the tax, they can claim a refundable tax credit, but only if they provide a valid social security number and supporting documentation.

How will the tax be collected?

The tax is collected at the point of transfer by the remittance provider, such as as bank or a money transfer service. The service provider will collect the 5% tax from the sender and deposit the tax with the US treasury department on a quarterly basis.

If a provider fails to collect the tax at the time of transfer, they will become liable for the payment instead.

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Anti-abuse provisions

To prevent circumvention of the remittance transfer tax, the proposal includes anti-conduit and anti-abuse rules. This means any indirect or creative structure used to avoid paying the remittance tax—such as funnelling money through third parties or shell accounts—could trigger enforcement actions and penalties.

Let’s say you are an H1B visa holder in the US and you send $20,000 to your parents in India in February 2026. Under the proposed law:

• A 5% tax = $1,000
• This amount will be added to your remittance cost and collected by your bank or service provider at the time of transfer

This is over and above any other fees or charges that may already apply to international remittances.

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What should NRIs start preparing for?

Here are a few practical steps NRIs can consider:

1. Track your remittances: Begin maintaining clear records of all foreign transfers for future tax reference.
2. Review your US residency and citizenship status: If you are on the path to US citizenship it may impact your tax position.
3. Stay informed: Follow the progress of this bill in the US Congress as amendments and final provisions could vary.
4. Consult a tax advisor: Each individual’s tax situation is unique. A qualified tax advisor can help you assess the impact of this new law and plan accordingly.

Final thoughts

While this tax is not yet law, it represents a significant shift in US tax policy on foreign remittances. If passed, it will increase the cost of sending money abroad for a large segment of the NRI community, particularly those who are not US citizens.

NRIs in the US should closely monitor legislative developments and consider speaking with a cross-border tax specialist to understand the full implications. What begins as a small percentage today can lead to a meaningful cumulative impact over time, especially for those with ongoing financial obligations in India.

Ajay R. Vaswani is the founder of ARAS and Company, Chartered Accountants. This article is intended for general informational purposes only and does not constitute legal or tax advice. Please consult a licenced professional.