A new policy brewing in the United States could cast a long shadow over millions of Indian families who depend on money sent home by loved ones working abroad. If the US government goes ahead with its plan to slap a 3.5% tax on remittances, combined with a 10% reciprocal tariff on imports, the financial ripple effects could be significant—and possibly painful—for India.
The proposal, which forms part of the revised "One Big Beautiful Bill" originally floated by former US President Donald Trump, is currently making its way through the Senate. It had earlier included a 5% excise duty on outward remittances. The revised version trims that to 3.5%, but analysts still see enough in the policy to spark concerns.
According to a new analysis by the Centre for WTO Studies—an institute under the Indian Institute of Foreign Trade in New Delhi—the measures could lead to billions of dollars being shaved off from remittance inflows into India over the next few years. The report, authored by trade researchers Pritam Banerjee, Saptarshee Mandal, and Divyansh Dua, estimates that remittances expected to reach $190.5 billion between 2025 and 2030 may instead fall to $183.7 billion if the tax kicks in.
This isn't just about a few billion less in the bank. The reduced inflow is expected to hit households directly—tightening family budgets, cutting down on local spending, and slowing down investments in everything from homes and savings accounts to mutual funds.
The report estimates that the ₹6.8 billion dip in remittances could mean ₹406 crore in lost returns from real estate, ₹200 crore from savings deposits, and ₹54 crore from capital markets. That’s money that would otherwise have been pumped into the economy through everyday consumption and long-term investments.
One likely side-effect? Migrants might start looking for ways to send money back home without paying the tax. And that could mean a shift towards informal or even illegal channels.
In a personal note, Dilip Ratha, a lead economist with the World Bank, reportedly warned that migrants may fall back on traditional, unofficial routes like hawala or hundi systems. Others may use friends, travellers, courier services—or even cryptocurrencies—to avoid the official system altogether.
The irony, he pointed out, is that such a tax could end up doing the opposite of what global development goals aim for. The United Nations has set a target to bring global remittance costs down to 3% by 2030. A 3.5% tax pushes in the wrong direction, making that goal harder to reach.
Beyond individual households, experts are worried about the longer-term impacts on the Indian economy. Remittances have long been one of the country's most stable sources of foreign exchange. They’ve helped build not just homes, but also small businesses, education funds, and retirement savings.
The Centre for WTO Studies warns that any sustained fall in remittance inflows could weaken India's domestic capital formation—that is, the ability to grow wealth locally through property, machinery, and finance. A drop in such investments would hurt asset creation and slow overall development.
Even the financial system might take a hit. If fewer people are saving or investing through formal channels, efforts to boost financial inclusion could lose steam. Banks and institutions rely on those inflows to deepen their customer base and strengthen economic networks, especially in rural and semi-urban India.
While the remittance tax has taken the spotlight, the proposed 10% reciprocal tariffs on imports could also have trade implications. These could push up costs for Indian exporters and, by extension, affect jobs and incomes in export-driven sectors.
Again, there’s no certainty this policy will go through in its current form. But with a Republican majority in the US Senate, observers are watching closely.