Last week, the US House of Representatives passed the 1,116-page ‘One Big Beautiful Bill’, a sweeping tax and immigration reform package whose proposals include a 3.5 percent levy on all outbound remittances sent by non-citizens in the US—including international students, and holders of H-1B visas and green cards. If enacted, this tax, proposed to take effect at the start of 2026, could have significant ramifications for India, the world’s largest recipient of remittances.
Indian immigrants are among the most significant contributors to the American economy. In 2023, there were more than 2.9 million Indians living in the US, making them the second-largest immigrant group after Mexicans. Indian immigrants accounted for 6 percent of America’s 47.8 million foreign-born residents. Their population has grown rapidly: fivefold from 1980 to 2000, and nearly tripled from 2000 to 2023—outpacing other immigrant groups with a 63 percent growth rate since 2010, compared to 20 percent for the overall foreign-born population.
What makes this demographic noteworthy is not just its size, but its profile. Over half of all Indian immigrants hold a bachelor’s or higher degree, and their median income is more than double that of both US-born and overall foreign-born populations. Their poverty rate is half the other immigrant groups’. A vast majority (81 percent) are of working age (18-64), and their labour force participation (74 percent) is significantly higher compared to US-born workers (63 percent) and the broader immigrant average (67 percent). Notably, nearly 78 percent are employed in high-skilled roles.
This population is also increasingly vital to US labour force growth. While the number of US-born individuals aged 25-54 remained almost unchanged between 2000 and 2022, the foreign-born population in this age group—dominated by Indians—increased by nearly 7 million.
From a fiscal standpoint, Indian immigrants are net contributors rather than burdens. They pay substantial sums in various taxes, and they contribute to social security and Medicare. Their comparatively limited use of public services—such as healthcare, education, and welfare—means they place minimal burden on the local and federal budgets.
Seen in this light, the proposed remittance tax risks more than just reducing outflows to other countries—it may alienate a high-performing, economically valuable immigrant group.
For India, the stakes are even higher—economically, socially and strategically. India is the world’s largest recipient of remittances. According to World Bank estimates, Indians received $119.5 billion in remittances through formal channels in 2023. Remittances have increased over 120 percent since 2010 and contributed 3.4 percent to India’s GDP in 2023.
The US has emerged as the largest source of India’s remittance inflows, accounting for 27.7 percent in 2023-24, up from 23.4 percent in 2020-21. These transfers have been a key buffer for India’s external accounts, playing an important role in offsetting the merchandise trade deficit. As per the latest RBI Bulletin, inward remittances funded an average of 42.2 percent of India’s trade deficit between 2010-11 and 2023-24 (excluding the Covid year 2020-21, when the figure touched 80 percent). Since 2000, remittances have consistently exceeded India’s inward foreign direct investments.
A reduction in remittance inflows could significantly widen India’s current account deficit. This would increase India’s reliance on external borrowing and place downward pressure on the rupee, potentially leading to a currency depreciation. India’s foreign exchange reserves, which stood at $677.84 billion in April 2025, would also face strain, limiting the Reserve Bank’s ability to defend the currency and stabilise markets. The knock-on effects—rising inflation, volatile interest rates, and tighter liquidity—could jeopardise macroeconomic stability.
The impact wouldn’t be limited to economic aggregates. Remittances support millions of Indian households, funding critical needs such as education, healthcare, housing and social mobility. A sudden dip would hurt the quality of life for families across the country—especially in remittance-dependent states like Maharashtra, Kerala and Tamil Nadu, the top three recipients in 2023-24.
There are also worrying behavioural implications. To avoid the tax, some may resort to informal or illegal money transfer methods, such as the hawala system. This shift from formal to shadow channels undermines financial transparency and poses regulatory and security risks, as hawala networks are often linked to money laundering, tax evasion and terror financing.
The tax, though aimed at revenue generation for the US, could thus trigger far-reaching unintended consequences. Addressing these challenges would require coordinated diplomacy and smart policy. India must engage proactively with US counterparts to highlight the contributions of its diaspora and seek exemptions or safeguards for high-compliance migrant groups. Domestically, India must strengthen its economic resilience by diversifying foreign exchange sources, reducing import dependency, and enhancing the efficiency of its formal remittance ecosystem.
It is also vital to improve financial literacy among the diaspora and reduce transaction costs through digital financial infrastructure. Making legal channels more accessible and cost-effective could deter diversion to informal methods.
The remittance tax is not just a line item in a bill—it’s a signal of shifting geopolitical, economic and demographic undercurrents. For India, it is a wake-up call to reinforce economic buffers and deepen engagement with its diaspora. For the US, it is an opportunity to re-evaluate how fiscal and immigration policies align with labour market realities. Getting this balance right will be essential for both.
(Views are personal)
Tulsi Jayakumar
Professor, finance & economics, and Executive Director at the Centre for Family Business and Entrepreneurship at Bhavan’s SPJIMR