The Indian impact of US remittance taxes | Number Theory

What will be the impact of the remittance tax? The charts below explores these questions in detail

Donald Trump’s “One Big Beautiful Bill”, which was recently passed by the US House of Representatives, could have significant implications for India. Running over 1,000 pages, the legislation includes a new 3.5% tax on money sent abroad as remittances by non-US citizens. Among those who will be affected are H-1B visa holders and permanent residents—many of whom are Indian professionals who routinely remit part of their salaries to families in India. If passed by the US Senate as well, the sizeable Indian population in the US would find it more expensive to send money back home. How much does India get as remittances every year? What is the share of US in India’s remittances? What will be the impact of the remittance tax? The charts below explores these questions in detail.

Reuters

India is the biggest recipient of remittances in the world

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  India is the biggest recipient of remittances in the world

  According to the World Bank, India’s annual remittance inflows have gone up from $12.9 billion in 2000 to $129.1 billion as of 2024, making it the top recipient in the world. Mexico, the second-highest recipient of international recipients, had inflows of $68.2 billion in 2024. To be sure, remittances only account for 3.3% of India’s GDP. For smaller economies such as Tajikistan, Tonga, Nicaragua, and Lebanon, remittances account for 45.4%, 38.2%, 27.2%, and 26.6% of their GDP—India ranks 71st by this metric. See chart 1
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  US is India’s biggest source of remittances

  Reserve Bank of India data reveals a clear shift in the geography of remittances flowing into the country. Over the past several years, the United States has steadily overtaken the United Arab Emirates to become the leading source of money sent home by Indians abroad. In 2023–24, the US accounted for 27.7% of all remittances received by India—up from 22.9% in 2016–17. In contrast, the UAE’s contribution has declined sharply, falling from 26.9% to 19.2% over the same period. This trend reflects a qualitative and quantitative change in patterns, with more white-collar Indian professionals moving to North America, particularly with the rise of IT and finance sectors in India which has led to remittances from the US overtaking those from West Asia which has traditionally been a migration destination for blue collar workers. “Remittances have benefitted from a gradual structural shift in Indian migrants’ key destinations from largely low-skilled, informally employment in the Gulf Cooperation Council (GCC) countries to a dominant share of high-skilled jobs in high-income countries such as the United States, the United Kingdom, and East Asia,” said a 2022 World Bank report. See chart 2
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  US accounts for 15.3% of “overseas Indians”

  According to the US Census Bureau, the number of Indians in the US has gone up from 2,06,000 in 1980 to 29,10,000 in 2023. However, data from India’s ministry of external affairs show that there are 54,09,062 overseas Indians in the US—including 2077158 non-resident Indians and 3331904 persons of Indian origin. This accounts for 15.3% of total overseas Indians, making US the top destination for Indian migrants. Indians are among the highest earning ethnic group in the US. An estimate from the Pew Research Center shows that the median income among Indian American households was $145,000 in 2022. This is significantly more than the median middle-class household income in the US at $106,100. See chart 3
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  This will add on to the financial burden of Indian Americans

  For many Indian Americans—who form a large and politically engaged diaspora—the proposed remittance tax comes as an unwelcome surprise. Indian migrants in the US have largely backed the Democratic Party across income groups, but economic concerns have increasingly taken centre-stage. In 2020, 68% of Indian Americans supported Joe Biden/Kamala Harris; in 2024, this fell to 60%. Meanwhile, the support for Trump among the diaspora increased from 22% to 31%, according to the 2024 Indian American Attitudes Survey by the Carnegie Endowment for International Peace. The survey shows that 17% of respondents cited inflation and rising prices as their top issue, followed by jobs and the economy (13%). Other key concerns included abortion (13%), immigration (10%), and healthcare (9%). Tellingly, only 5% cited taxes as a major concern prior to the 2024 election. The sudden introduction of a remittance tax now adds a new financial strain—one that cuts across income groups and intensifies existing worries over the cost of living. See chart 4