US Proposes 3.5% Excise Tax on Remittances Impact on NRIs
The US proposes 3.5% excise tax on remittances sent outside the country—stirring global debate, especially among Indian NRIs who regularly send money home. Here’s a simplified breakdown of what this proposal means and how it may impact Indian families and businesses.
What Is the New US Excise Tax Proposal?
Under a new bill introduced in the US House of Representatives in May 2025, the Remittance Transfer Tax Act proposes a 3.5% excise tax on funds transferred out of the US via wire transfer, money orders, or similar financial mechanisms.
Key Highlights:
- Applicable to: Transfers to non-US residents or foreign accounts.
- Proposed rate: 3.5% on total remittance value.
- Purpose: Intended to fund border enforcement and domestic spending programs.
- Status: Bill stage only — not yet law.
Who Will Be Affected?
The proposed tax, if passed, could affect:
- NRIs (Non-Resident Indians) in the US who send money to family in India.
- Indian students and workers in the US transferring savings home.
- Remittance service providers like Western Union, MoneyGram, and fintech platforms like Wise or Xoom.
Top Concern:
India is the largest recipient of global remittances—over $125 billion in 2023 (World Bank data). A 3.5% levy could increase the cost burden on senders and reduce net inflows to countries like India.
Will It Impact LRS Transfers from India?
No.
This tax is not applicable to Indian residents sending money abroad under the Liberalised Remittance Scheme (LRS). LRS already attracts TCS (Tax Collected at Source) as per Section 206C(1G) of the Income Tax Act, 1961.
LRS vs US Excise Tax – Key Differences
| Feature | LRS (India) | Remittance Tax (Proposed in US) |
|---|---|---|
| Applicable To | Indian residents | US-based senders |
| Governing Law | Section 206C(1G), Income Tax Act | US Internal Revenue Code |
| Tax Rate | 5% to 20% TCS (based on purpose/limit) | 3.5% excise tax |
| Destination Countries | Any foreign destination | Any country outside the US |
| Refundable in ITR? | Yes (TCS claimable) | No clarity yet |
Legal View: Does It Violate Tax Treaties?
Experts point out that excise taxes on remittances may not violate Double Taxation Avoidance Agreements (DTAAs), but they could potentially strain diplomatic and trade relations.
The India–US DTAA primarily covers income taxes, not excise or transaction-based levies.
As per US Congress Bill Tracker, such proposals often take months (or years) to become law. India may also take up the matter diplomatically if it impacts remittance volumes.
Expert Tip: Choose Remittance Platforms Wisely
If this tax becomes law:
- NRIs should compare platforms for bundled charges (exchange rate + tax).
- Fintechs may absorb part of the cost to retain users.
- Consider monthly limits or bank-to-bank transfers if exempted.
💡 “This move might lead to a shift toward alternate, tax-optimized remittance channels if implemented,” says Ritesh Bansal, a cross-border tax consultant.
Conclusion
While the 3.5% US remittance tax is still a proposal, Indian NRIs should stay alert. It may affect how and when money is sent home. Efiletax will continue to monitor legal and compliance updates affecting global Indians.
FAQs
Q1: Is the 3.5% tax applicable now?
No. It’s only a proposed bill—not yet enacted.
Q2: Does this affect Indian citizens in India?
No. It applies only to people in the US sending money abroad.
Q3: Can NRIs claim credit for this tax in India?
Unlikely, as it’s an excise tax, not an income tax covered under DTAA.
Snippet (40–50 words):
The US proposes a 3.5% excise tax on foreign remittances, raising concern among Indian NRIs. If passed, the bill may increase the cost of sending money to India, affecting families and cross-border finance. Here’s a simplified breakdown and what NRIs should know.