Syllabus: GS2/IR/GS3/Economy
Context
- A U.S. bill proposes a 5% excise tax on any remittances that originate in the US to any other country.
Proposed Bill
- Tax Scope:The Bill proposes the levy on all cross-border remittances made by non-citizens, including H-1B, L-1, and F-1 visa holders, as well as green card holders. US citizens and nationals are exempt from this.
- No minimum limit has been set in the proposed bill, this means even small transactions will be taxed.
- For non-resident Indians in the US, the proposed tax will apply to any income they earn in the US from investments or stock options as well.
- Tax Collection: The provision requires that the tax be collected by remittance-transfer providers, who are responsible for depositing it every quarter with the treasury secretary.
What are Remittances?
- Remittances are a way to electronically send funds to people, often family, in another country.
- Usually sent by individuals working in foreign countries, especially those employed in blue-collar or skilled jobs.
- Impact: Remittances are a significant source of income for many countries, contributing to their economic stability, supporting local economies, and sometimes helping to finance national trade deficits.
- Modes of Transfer: Remittances can be sent through banks, money transfer operators, or digital platforms.
Overseas Indians in US
- Nearly 54 lakh overseas Indians in the US, most of these individuals are in the US on temporary work visas like H-1B and L-1, or are green card holders who have not yet acquired citizenship.
- India is the largest recipient of remittances from the US, receiving $32.9 billion in 2023-24 with a 27.7 per cent share in the country’s inward remittances (RBI).
- As per the World Bank, India has been the top recipient of remittances since 2008, with its share in world remittances rising from around 11 per cent in 2001 to about 14 percent in 2024.
Potential Impacts
- Remittances have long been a critical source of income for low- and middle-income countries, and have continued to exceed foreign direct investment (FDI) flows and ODA combined.
- If the proposal gets approved, the cost for Indians in the US sending money back home will rise.
- Could discourage remittances to families in home countries.
- Transfer providers may face new administrative and compliance responsibilities.
- Might affect decisions on where to invest or hold assets, especially for those on temporary visas.
- Critics argue the tax constitutes double taxation, as immigrants already pay U.S. taxes on their income.
India’s Remittances: Key Facts
- India’s remittances have more than doubled from $55.6 billion in 2010-11 to $118.7 billion in 2023-24.
- Remittances from the U.S. and U.K. nearly doubled to 40% of total inward remittances in FY24, up from 26% in FY17.
- The U.S. became the top source of remittances in FY21, contributing 23.4% followed by the UAE contributing 19.2%.
- Half of the remittances went to Maharashtra, Kerala, and Tamil Nadu. Other states like Haryana, Gujarat, and Punjab had smaller shares (below 5%).
Source: BS
Previous article
Sagarmatha Sambaad
