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A new US proposal to impose a 5 percent tax on outbound remittances by non-citizens including NRIs has drawn sharp reactions from Indians living in America. It could significantly increase the cost of sending money home.

The move particularly impacts Indian professionals and green card holders who collectively send billions to India every year.

Indian NRIs’ highest remittances come from US

If passed, the bill would require NRIs to pay USD 50 in tax for every USD 1,000 remitted to India. It would cost the Indian diaspora huge money annually.

The proposal comes as India’s remittance inflows hit a record USD 118.7 billion in FY24. The US is contributing 28 percent.

Changing remittance trends

The US has emerged as India’s top remittance source. Its share grew from 23.4 percent in FY21 to 27.7 percent in FY24. The contributions from Gulf nations have declined.

Despite hosting more Indian workers, the contribution from the UAE has dropped from 27 percent to 19.2 percent over seven years.

Experts attribute this shift to America’s white-collar Indian workforce – including H-1B visa holders and professionals – who typically earn higher salaries than Gulf-based blue-collar workers.

Singapore also saw growth. It reached a 6.6 percent share as more Indians settle in the financial hub.

With RBI projecting FY25 remittances to reach USD 128 billion, the tax could strain NRI finances while marginally affecting India’s foreign inflows.