It targets international currency transfers for non-U.S. citizens, including green card holders and temporary visa workers, such as H-1B or H-2A visas. The proposed taxation will not apply to U.S. citizens.
“The proposed U.S. tax on non-citizens’ foreign remittances abroad has raised an alarm in India, and if the program becomes law, the tax will lose billions of dollars in annual foreign currency inflows.”
For India, the shares are high, with nearly 28% of which come from the United States as the country received $120 billion in remittances in 2023-24.
“A 5% tax could significantly increase the cost of remittances. Remittance flows fell by 10-15%, which could lead to a shortage of USD 1.2-1.8 billion in India each year,” said GTRI founder Ajay Srivastava.
He said the losses will tighten the dollar supply in India’s foreign exchange market, putting moderate depreciation pressure on the rupee. He added: “The Reserve Bank of India may be forced to intervene more frequently to stabilize the currency. If the remittance vibration is fully played, the rupee may weaken by 1-1.5 rupees.” In states such as Kerala, Uttar Pradesh and Bihar, thousands of families rely on remittances to pay for basic expenses such as education, health care and housing.
Srivastava said that the sudden drop in these traffic could cause household consumption at a time when the Indian economy is already driving global uncertainty and inflationary pressures.
By taxing global capital flows, he said, the United States could undermine key channels for global development financing, reduce household incomes in poor countries, and weaken demand from economies that are already trapped in inequality and instability.
This development is of great significance as India proposed in the World Trade Organization (WTO) to reduce the cost of cross-border capital or remittances.
