For many Indian families, it’s been a point of pride – and often livelihood – that their children send money back from the United States. But these families may be in for a bit of a shock – when they see less money in their accounts. That’s because a new tax has been proposed in the US – one that is aimed at these remittances specifically.

A U.S. bill proposes a 5% excise tax on any remittances that originate in the US to any other country. Indians are among the top three immigrant communities in the US with nearly 2.3 million Indians working there under various visa programmes. And these Indians account for one of the largest sources of remittances into India. In 2023 alone, they sent home over $23 billion.

But it’s not just H-1B, F-1 visa holders and green card holders who will be affected by the new Bill, if it is passed. For non-resident Indians in the US, the proposed tax will apply to any income they earn in the US from investments or stock options as well.

So take for instance a typical Indian family in the U.S. which sends home $1,000 a month. With the 5% tax, they will be able to send 50 dollars less. Inversely, they will have to send back a lot more money to offset the tax and ensure their monthly remittances to their families here don’t dip.

The Bill, which has been backed by Republicans, is linked to Trump’s broader economic agenda – and it has sparked off debate in Washington D.C.

Detractors, especially back here in India, warn that it could push remittances into informal or unregulated channels and make the U.S. less attractive to skilled workers from abroad. Some also argue that this could put pressure on employers to hike salaries just to offset the tax. There is also an argument that the tax unfairly targets legal immigrants, and could damage U.S. ties with countries like India.

“This levy clearly discriminates against non-US citizens who are contributing to the US economy in the same way as US citizens do. It is interesting to note that it is proposed to be levied by the same country that found India’s Equalisation Levy to be discriminatory!" says Akhilesh Ranjan, former Member CBDT, now with PwC.

Similarly, Sandeep Jhunjhunwala, M&A Tax Partner at Nangia Andersen LLP says, “A new remittance tax proposal by the House Republicans could significantly impact NRIs and other foreign nationals living in the United States. This represents a notable shift in US tax policy, particularly for foreign workers. By exempting only US citizens and nationals making remittance through qualified remittance transfer provider, the proposal disproportionately affects millions of lawful immigrants including green card holders, work visa holders, and non-resident aliens, many of whom maintain ongoing financial obligations in their home countries.”

“In addition to personal remittances, the provision could also affect compensation practices. Many foreign nationals receive RSUs as part of their pay packages. When these RSUs vest and are sold, the sales proceeds are often transferred overseas to home country, for personal use, family support, or investment. Under the proposed remittance tax, such transfers even of post-tax proceeds could attract the 5% excise levy, adding a layer of cost to already-taxed income," Jhunjhunwala added.

Ajay Rotti, founder of Tax Compass, a tax consultancy firm too believes that the tax has much larger implications. “A new legislative proposal in the United States, officially titled "The One Big Beautiful Bill," seeks to impose a 5% excise tax on all international remittances sent by non-citizens. This includes individuals on non-immigrant visas such as H-1B and those holding green cards."

"The bill aims to generate revenue from outbound remittances by non-citizens and levies a 5% remittance tax on outward remittance from US. The proposed 5% excise tax on international remittances by non-U.S. citizens is detailed in Section 112105 of the proposed Bill. This section outlines the specifics of the tax, including its applicability to non-citizens sending money abroad. The provision requires that the tax be collected by the remittance transfer providers and the remittance transfer providers are responsible for remitting such tax quarterly to the Secretary of the Treasury,” Rotti added.

Amarpal Chadha, Tax Partner and Mobility Leader, EY India, says, “The newly introduced U.S. bill proposes a 5% tax on remittances outside US and is currently at an early stage of consideration. The measure—if enacted—could place added financial pressure on Indian nationals working in the United States. Many may be forced to re-evaluate their remittance patterns, including the amount and frequency of remittances for the purpose of maintenance of family or investment in India.”

A senior Indian government official who did not wish to be named said, "if this law is enacted it would amount to tax treaty override. We know that US constitution allows treaty override,  unlike India where more favourable law prevails, but this would be a very unwelcome treaty override from various countries point of views."

For now, this tax is just a proposal—but it’s already set alarm bells ringing across quite a few immigrant communities.