Synopsis : A new 1% US remittance tax from 2026 may add to transfer costs but is unlikely to dent India’s record dollar inflow. India, the world’s top remittance recipient, may see less than $500 million in formal remittance loss, with the tax impact cushioned by exemptions.
Sending money home for Indians in the US is set to become a little more expensive after American lawmakers cleared President Trump’s ‘One Big Beautiful Bill Act’ imposing a 1% tax on remittances from January 2026. Initially proposed at 5% and later trimmed to 1%, the tax will apply only to cash or money order-based transfers over $15, exempting bank account, debit, and credit card transfers.
While the tax introduces a new hurdle in cross-border payments, its limited scope means India’s $124 billion remittance pipeline will mostly remain intact. The US, which accounts for nearly 28% of India’s remittance inflow, sent about $32 billion to India in FY24, highlighting its growing share in India’s forex landscape.
The Center for Global Development estimates India could lose under $500 million in formal remittances due to the tax, second only to Mexico’s $1.5 billion estimated hit. According to IDFC FIRST Bank’s Gaura Sen Gupta, remittance flows may get frontloaded in 2025 ahead of the tax, but the impact will be muted given the low rate.
Remittances remain a lifeline for India’s external balances, having covered the country’s goods and services trade deficit with an additional surplus in FY25. Even so, the added tax represents a fresh friction in cross-border transfers, pushing more countries to explore linking instant payment systems and CBDCs to reduce costs. India has already moved ahead with linking UPI to Singapore’s PayNow and joined the BIS Project Nexus to enable faster, cheaper, and more transparent global transfers, keeping the remittance lifeline efficient even as new taxes surface.
Disclaimer : This article is for informational purposes only and does not constitute financial or legal advice.
