India braces for economic ripple
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Though the 1% tax may seem modest, its broader implications for Indian families, students, and the country’s economy are significant
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With remittances forming a critical part of India’s financial ecosystem, the new US law introduces an added cost burden on individuals while posing macroeconomic challenges for the nation
In a move with far-reaching implications, the United States has enacted a new remittance tax law that could strain the finances of Indian students, Non-Resident Indians (NRIs), and ultimately affect India’s foreign exchange reserves. Passed as part of President Donald Trump’s sweeping “One Big Beautiful Bill Act”, the legislation introduces a 1% levy on money transfers made by non-US citizens via cash, money orders, or cashier’s cheques, reported india.com.
What the New Law Entails
Effective from July 4, 2025, the so-called “Trump Remittance Tax” will apply to all non-citizens of the US—including those holding Green Cards, temporary work visas like H-1B or H-2A, and international students. While the original proposal called for a 5% tax, the final legislation lowered the rate to 1%, offering some relief but not without concern.
To illustrate its impact: anyone sending ₹1,00,000 (approx. $1,160) to India will now incur an additional ₹1,000 in tax. This amount will be collected by remittance providers such as Western Union, MoneyGram, and banks, and subsequently remitted to the US government on a quarterly basis.
As the policy comes into force, many NRIs and Indian students are expected to reassess their financial planning, and policymakers in India will likely keep a close eye on the ripple effects
India—World’s Top Remittance Recipient—May Feel the Pinch
India received a staggering $129 billion in remittances in 2024, making it the largest recipient globally, according to the World Bank. The United States alone accounted for 28% of these inflows. Consequently, even a marginal decline in remittance volume from the US could ripple across the Indian economy.
States like Uttar Pradesh, Bihar, and Kerala, where families rely heavily on foreign remittances for essentials like education, healthcare, and housing, are particularly vulnerable. Economists warn that reduced transfers could limit household spending and deepen the effects of inflation and global economic instability.
Forex Reserves Under Pressure
Ajay Srivastava, a senior economist, has forecast that India could lose between $12 billion to $18 billion in remittances if transfers from the US dip by just 10–15%. Such a drop would reduce the inflow of US dollars into India, putting downward pressure on the Indian Rupee. This could compel the Reserve Bank of India (RBI) to step in frequently to stabilize the currency, potentially leading to a depreciation of ₹1.5 against the US dollar.
