U.S. to Impose 1% Tax on Remittances: What It Means for Indians

Washington D.C. The U.S. government will implement a 1 per cent tax on remittances sent overseas starting January 1, 2026, under the One Big Beautiful Bill Act (OBBBA). The tax, which initially proposed a steep 5 per cent rate, was revised to 3.5 per cent before being finalized at 1 per cent in the face of widespread criticism and lobbying by diaspora groups and financial institutions.

What Is the Remittance Tax?

The new rule mandates a 1% levy on all non-commercial overseas money transfers, a measure that targets personal remittances sent by individuals, such as those sent to family or for personal support. It will not apply to payments classified as business-related or for services rendered.

The tax will be collected at the point of transfer by banks and money transfer services like Western Union, PayPal, and MoneyGram, who will then remit the funds to the U.S. Treasury.

Impact on Indians and the Indian Diaspora

This move could have significant implications for the large Indian diaspora in the United States, which is among the most active in sending remittances globally. According to the World Bank, Indians in the U.S. sent over $18 billion in remittances to India in 2024, making the U.S. the largest single source of such transfers.

Increased Financial Burden

A 1% tax on a $10,000 annual remittance would mean $100 in additional costs per year, which could be significant for lower-income migrant workers and students supporting families back home.

Higher Transfer Costs

Many remitters already pay service fees of 1–3% to money transfer companies. The additional 1% tax could increase overall costs by 20–30%, depending on the provider.

Possible Shift to Informal Channels

Analysts warn the tax might encourage the use of informal or unregulated channels for money transfer, raising risks of fraud and undermining financial transparency.

Student and Worker Remittances

Indian students and H-1B visa holders frequently support parents and siblings. This tax may discourage frequent small-value transfers, changing how and when money is sent.

Mixed Reactions

Financial experts and immigrant advocacy groups have expressed mixed reactions.

“Even at 1%, this is a tax on love, money sent by people to support their families back home,” said Anjali Nair, Director of the Indian Diaspora Rights Forum. “This disproportionately affects immigrants, particularly those who are not high-income earners.”

Economists, however, argue that the tax may not drastically reduce overall remittance volumes, as it remains relatively low and predictable. "The final 1% rate is far less disruptive than the originally proposed 5%. It’s a compromise, but still a new cost on a historically untaxed activity,” said a senior economist.

Possible Global Precedent

The U.S. remittance tax could set a precedent for other countries with large immigrant populations. Advocacy groups fear that similar policies might emerge elsewhere, potentially reducing global remittance flows, which are a crucial source of income for many developing nations.

Remittance providers are expected to begin updating their systems to implement the tax collection infrastructure by mid-2025. Consumer awareness campaigns are also expected from both government agencies and financial institutions to inform users of the changes.