U.S. President Donald Trump signs a document in the Oval Office at the White House in Washington, U.S. File photo
| Photo Credit: REUTERS
A proposal by the Donald Trump administration to levy a 5% tax on remittances to other countries could hurt India in particular, as the United States is the largest source of remittances to India, with its share rising over the last 8-9 years.
However, the latest Reserve Bank of India (RBI) data also shows several other countries such as the United Kingdom, Singapore, and Canada are also seeing their shares in remittances to India rising swiftly, which could potentially mitigate a shortfall from the U.S..
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If a new legislation introduced by U.S. President Donald Trump, called the “One Big Beautiful Bill Act”, is passed, it could see sweeping changes to that country’s income tax, healthcare, corporate tax, and national debt level regulations. One of the provisions, however, deals with an excise tax on outward remittances from the US.
“This provision imposes a five percent excise tax on remittance transfers which will be paid for by the sender with respect to such transfers,” the Bill says, adding that the tax would be collected by the remittance transfer providers.
The Hindu had reported in March 2025 that the latest RBI data showed the US had the largest share, of 27.7%, in the remittances flowing into India in 2023-24. The US’ share had stood at 22.9% in 2016-17.
India’s total remittances more than doubled from $55.6 billion in 2010-11 to $118.7 billion in 2023-24, the data showed.
This would mean the US accounted for $32.9 billion of India’s inward remittances that year. A 5% tax on these remittances would, therefore, increase remittance costs by around $1.6 billion, and the potential fall in remittances to India could have macroeconomic ramifications.
“A 10-15% drop in remittance flows could result in a $12-18 billion shortfall for India annually,” Ajay Srivastava, former Director General of Foreign Trade and founder of the Global Trade Research Initiative said. “That loss would tighten the supply of U.S. dollars in India’s foreign exchange market, putting modest depreciation pressure on the rupee.”
This, he said, could push the RBI to intervene more frequently to stabilise the currency, as it has already periodically been doing.
“The rupee could weaken by Rs 1-1.5 per US dollar if the remittance shock plays out fully,” Mr. Srivastava added.
However, the RBI data also shows that, while the U,S, remains the largest source of remittances to India, other countries are rising fast too.
“There was also a notable uptick in the share of remittances from Singapore (6.6%), Canada (3.8%) and Australia (2.3%) in 2023-24, when compared especially with the pandemic year (2020-21),” the RBI noted.
The central bank in particular mentioned the increasing number of work-related emigrants from India to the UK, and the fact that Canada remains a preferred destination for Indian students pursuing higher education abroad.
Published – May 21, 2025 10:24 am IST
