Commencement of remittance tax on funds transferred by NRIs and US green card holders, effective immediately...
A new 1% remittance tax is set to take effect in the United States, but Non-Resident Indians (NRIs) in the US have reason to breathe a sigh of relief. The tax, intended to apply to international money transfers made by non-US citizens, has been reduced from earlier suggestions of 3.5% to 5%, and will only affect non-bank and non-card-based remittance methods.
The details of the exemption for NRIs were announced by the US Senate. Any remittance transfer from an account held at a US financial institution, including bank accounts, is fully exempt from the 1% remittance tax. Transfers made using a debit or credit card issued in the United States are also exempt, as are transfers facilitated through the Automated Clearing House (ACH) system.
These exemptions are designed to encourage the use of formal banking channels, which are already widely used by NRIs for sending money back to India for family support, education, investments, and more. As a result, the majority of NRI remittances are expected to remain unaffected by the new tax.
The remittance tax is an excise tax on international money transfers made by non-US citizens residing in the United States. The tax is controversial and has sparked debate among immigrant communities and advocacy groups. However, Sonam Chandwani, Managing Partner at KS Legal & Associates, states that the remittance tax reform enhances transparency and trust in the system. Decisions like the reduction of the remittance tax go a long way in keeping trust strong and relationships positive between the US and immigrant communities.
The remittance tax will primarily affect non-bank and non-card-based remittance methods, such as money transfer services like Western Union and MoneyGram. The tax is intended to generate revenue for the US government, with the funds collected intended to be used for infrastructure and other domestic programs. The tax will take effect from January 1, 2026, and will be collected by remittance service providers and remitted to the US Treasury every quarter.
India is the world's largest remittance recipient, receiving an estimated $33 billion from the United States in FY24. The remittance tax will not apply to remittance transfers made via bank accounts or money transfers using US-issued debit or credit cards. This exemption represents almost 28% of India's total remittance inflows. Indian students alone contribute over $17 billion to the US economy every year.
Saurabh Arora, Founder & CEO of University Living, says that the reduction of the remittance tax from 5% to 1% is a significant relief for immigrant communities. The lower tax rate is expected to encourage more formal banking channels for remittance transfers, which will benefit both the US and Indian economies by increasing transparency and reducing the risk of fraud.
In conclusion, NRIs in the US sending money to India via bank accounts, US-issued debit or credit cards, or ACH transfers will not be subject to the new 1% remittance tax. The tax will primarily affect non-bank and non-card-based remittance methods. The exemptions are intended to encourage the use of official banking channels for remittance transfers, which will benefit both the US and Indian economies.
- The remittance tax, set to take effect in 2026, will primarily impact non-bank and non-card-based remittance methods such as Western Union and MoneyGram, but NRIs using accounts at US financial institutions, including banks, for transfers will be exempt.
- The reduction of the remittance tax from 5% to 1% is viewed as a significant relief by immigrant communities, as it is expected to promote the use of formal banking channels, thereby increasing transparency and reducing the risk of fraud in both the US and Indian economies.
- Money transfers facilitated through the Automated Clevering House (ACH) system and transfers made using a debit or credit card issued in the United States are also exempt from the new 1% remittance tax.
- The remittance tax, controversial among immigrant communities and advocacy groups, aims to generate revenue for the US government, with the collected funds intended for infrastructure and domestic programs.
- India, the world's largest remittance recipient, will receive approximately $33 billion from the United States in FY24, and the exemption of remittance transfers via bank accounts and US-issued debit or credit cards represents almost 28% of India's total remittance inflows.
