India faces a considerable financial challenge with policies proposed in a Donald Trump administration that would most likely limit immigration to the US and create a new excise tax on remittance transfers. Both of these items could cost India several billion dollars each year, impacting millions of Indian families and the Indian economy, which depends heavily on these foreign inflows.
The problem is an excise tax on remittance transfers and a provision that states, 'Excise tax on remittance transfers,' or a 5% excise tax on all remittance transfers. For example, if a sender sends $1,200, they would pay $60 (or Rs 5,000) in tax.
Authorized remittance transfer providers would be responsible for collecting this tax and remitting it to the Secretary of the Treasury four times a year. Critically, this 5% tax will affect US citizens or nationals only if they use a 'qualified remittance transfer provider' to make the payment.
The provision also includes a refundable tax credit for excise taxes paid by taxpayers with valid Social Security numbers, though the overall impact remains significant.
Indians living in the US are among the largest remitters globally, sending billions of dollars to support their families, pay for education, cover loan EMIs, and invest in real estate or the stock market in India.
"The 5% tax increases the relative cost for sending money remittances to India. In time this could cause remittances to be smaller or less frequent, especially within the middle-income group," explains Nish Bhatt, founder & CEO, Millwood Kane International. "High-net-worth individuals would incur this cost more easily, but for a large segment, which is the middle class, it could start to affect their financial planning and allocation toward assets in India."
NRIs are significant remitters of US dollars who have greatly invested in the Indian stock market, mutual funds, and real estate. Dilshad Billimoria, founder, managing director, and SEBI-registered chief financial planner at Dilzer Consultants, confirms, "There will be a 5% excise tax applicable on remittance transfers made out of the US, i.e., remittances made to other parts of the world.
This includes NRIs sending money to their parents in India, parents sending money for children's education, loan EMIs, and investment in property."
"The number of remittances from the US to India is staggering. From the roughly 4.5 million Indian-origin persons living in the US, they remitted $32 billion to India in 2023-24.
The levy represents a substantial amount for a very, very significant percentage of the 28% of remittances from India's total inflow of $118.7 billion per annum," adds Sonam Chandwani, Managing Partner of KS Legal & Associates.
In addition to the remittance tax, any potential Trump administration's renewed efforts to curtail migration might further erode the remittance inflow. The compounding effect might be policies addressing increased inspection of skilled visa programs and a more challenging pathway to long-term employment.
If those efforts progressed, fewer Indian professionals might pursue a future in the US, with a corresponding impact on remittance flows to India.
The GTRI has asserted that even a 5% tax could cause a 10-15% drop in remittance flows, creating shortfalls in the USD 12-18 billion range for India annually. The decrease in remittances will affect India's foreign exchange market variables with a decrease in the rupee against other currencies and an increase in imports.
The combination of migration restrictions and remittance taxes creates a significant economic instability factor in India and a potential financial catastrophe for many families dependent upon those critical inflows.