A Billion Dollar Tax Bill for the Indian diaspora?

US plan to tax remittances made by non-citizens.
New York-A new US bill named 'The One Big Beautiful Bill,' proposes 5% tax on remittances from non-US citizens. This impacts Indian H-1B, L-1, and green card holders sending money to India. The tax could cost the Indian diaspora billions of dollars annually. The House aims to pass the bill soon, potentially making it law by June-July. Experts advise early remittances to avoid the tax.
Bill contains a sting for the lakhs of Indians in the US, be they non-immigrant visa holders (like H-1B) or green card holders. Once this bill is enacted, anyone who is not a US citizen and who remits money outside the US will have to pay a remittance tax of 5%.Lately, the US has emerged as the largest source country for remittances into India attributed to both the size of the Indian diaspora and their income levels in America. According to India’s Ministry of External Affairs there are nearly 45 lakh overseas Indians in the US (which includes nearly 32 lakh 'Persons of Indian origin').According to a ‘Remittance Survey’ published by the Reserve Bank of India (RBI) in March, of the total remittances of US $ 118.7 billion in fiscal 2023-24, nearly 28 percent were from the US, with the UAE coming in as the second leading source country. This translates to a whopping US $ 32 billion in remittances from the US. If this bill is enacted, even if we assume the remittance figure from the US to be constant, the Indian diaspora would end up paying US $ 1.6 billion as remittance tax.This bill is the proposed tax plan released recently by the US House Ways and Means Committee. Tucked away in page 327 of this 389 page document is a section on remittances, which calls for a ‘tax equal to 5% of the amount of such transfer’. As no exemption threshold limit has been set, it would also impact transfers of small denominations. It adds that this shall not apply to any remittance-transfer where the remittance transfer provider is a ‘qualified remittance transfer provider’ and the sender is a ‘verified US sender’. The latter is then defined to mean a citizen or national of the US.In other words, if an H-1B holder or an L-1 (who is in US on an intra company transfer) or even a green card holder remits money to his family (say parents) in India, or remits money for the purpose of investments – say in Indian securities or real estate, the remittance will be subject to a 5% withholding by the transfer provider (say US bank). However, a tax credit could be available against the US taxes payable by such an individual. The House of Representatives aims to pass this bill in May itself and it will then move to the Senate. According to cross-border investment experts, this bill is likely to sail through and may be law by June-July. They are advising the Indian diaspora to try and remit larger funds in the coming weeks to escape the remittance tax.