Estimated reading time: 8 minutes
A Caregiving Dilemma
Ajay, an Indian American engineer (name changed for privacy), has called the United States home for over 35 years. His 90-year-old mother, however, lives alone in Mumbai, cared for by a full-time nurse and domestic staff. In the past, she would visit and stay with him, but as she grew older and her health became more fragile, she chose to remain in India full-time. This choice, while practical for her comfort and continuity of care, has brought its own set of challenges for Ajay. Like many others in the diaspora, he now finds himself deeply involved in coordinating his elderly parents’ healthcare and daily needs from afar—a responsibility that brings emotional, logistical, and financial challenges.
While coordinating his mother’s care is already a significant responsibility, Ajay—like many Indians living abroad—also sends money home every month to cover her living expenses, including the salaries of the nurse and househelp who support her daily needs. Ajay uses Remitly to do so, but with a potential tax on the horizon, even the simple act of sending money through Remitly could become more costly or complex.
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A punishing 3.5% tax + citizenship verification
Buried in the expansive “One Big Beautiful” bill is a little-noticed provision that could have major consequences for the Indian diaspora. The clause introduces a 3.5% tax on remittances sent abroad by foreign workers, including green card holders and temporary visa holders such as those on H-1B visas. For India—the world’s leading recipient of remittances—the proposed tax could have far-reaching economic and social effects, experts caution.
While U.S. citizens like Ajay are technically exempt from the tax, they still need to verify their citizenship status, adding a layer of complexity to a routine monthly transaction and opening the door to potential fraud.
At a June 6 American Community Media (ACom) briefing titled Taxing Remittances—A New Front in War on Immigrants, experts warned the tax would harm economies abroad, especially in lower-income countries where remittances account for up to 30% of GDP. Immigrant advocates argued that the proposal represents a form of double taxation as senders — including millions of undocumented immigrants — already pay income tax on their earnings. It could, they added, drive many to seek more informal, riskier ways to send money home.
India’s Reliance on Remittance Flows
According to the Migration Policy Institute, a large percentage of the 2.9 million Indian immigrants in the US regularly send money to India to support their families, invest in businesses, or pay back education loans.
India’s remittances have more than doubled from US$55.6 billion in 2010-11 to US$118.7 billion in 2023-24, according to the Reserve Bank of India (RBI), enough to cover half of India’s goods trade deficit and surpass foreign direct investment.
The World Bank reports that India is the world’s top recipient of remittances since 2008, with its global share rising from 11% in 2001 to 14% in 2024. The Reserve Bank of India projects this upward trend to continue, with remittances expected to reach $160 billion by 2029. Since 2000, remittance inflows have consistently accounted for around 3% of the country’s GDP.
A BBC report notes that remittances in India are used not just for daily expenses, but also to build a future through savings, buying a home, investing in gold, or starting a small business, according to the Centre for WTO Studies in Delhi.
A drop in remittances could lead to lower household savings and less investment in property or business. When inflows fall, families tend to focus on basic needs—such as food, healthcare, and education—rather than saving or investing.
Breaking Down the 3.5% Tax
The “One Big Beautiful Bill,” a comprehensive piece of legislation proposed by Republicans, focuses on tax cuts, spending, and border security; tucked inside the more than 1000 pages is the proposed 3.5% tax on international remittances.
What President Trump is trying to do with this is two-fold, said Ariel Ruiz Soto, Senior Policy Analyst at the Migration Policy Institute at the briefing. “One is trying to use this as a method of collecting money to subsidize or to cover the deficit for the bill that they’re advancing,” but another worrying aspect of the mandate on non-US citizens means that the administration will be able to collect citizenship data, or legal status information of those immigrants. “I think that’s a big aspect of the data here that is not being considered as much in the media,” cautioned Soto.
“Remittance agencies like Xoom or Remitly, or Western Union are going to carry the burden of trying to ask who is an immigrant, or what their immigration status will be.”
Risk of Fraud
Money transfer companies, such as banks, cryptocurrency companies, and other non-banking financial institutions like remittance service providers or money transfer operators, will have to register with the U.S. Treasury to integrate their platforms to verify citizenship and tax status. Dr. Manuel Orozco, Senior Migration and Remittances Advisor for the International Fund for Agricultural Development, noted that in the United States, “there is not a single private entity that is authorized to collect information about your citizenship status.”
He warned that this legislation could allow hackers and financial criminal organizations to break into their systems and collect information about individuals – taxpayer status and citizenship status – which could lead to identity fraud or create ‘Ghost Citizens’.
The financial risk to U.S. citizens, said Dr. Orozco, is that they get tax credits with evidence of US citizenship, such as a birth certificate, naturalization certificate, or passport, but “no one carries that stuff around….how will a bank confirm a money transfer is performed by a U.S. Citizen?”
Hawala & Illegal Money Channels
To avoid the added cost and scrutiny, some immigrants may turn to informal—or even illegal—channels to send money home, putting themselves at greater risk of exploitation and contact with criminal networks.
In the interview with India Currents, Ajay warned of the use of Hawala, “an illegal way to transfer money that gives rise to unnecessary fraud.”
The Hawala system is believed to have originated in India centuries ago and is widely used in South Asia and the Arab world. It is an informal money channel, operating outside formal banking and financial systems and based on trust and reputation between the hawaladars. Rather than a physical money transfer, transactions flow through a system of accounting and offsetting debts.
In the United States, Hawala is considered illegal because U.S. law requires all money transmitters, including informal systems like Hawala, to register with the Financial Crimes Enforcement Network (FinCEN) and comply with the Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations.
View From Fintech & Trade Groups
India Currents reached out to the Financial Technology Association (FTA), which—along with six other trade associations—sent a letter to Senate Finance Committee leaders Mike Crapo (R-ID) and Ron Wyden (D-OR), urging lawmakers to exclude the proposed remittance tax and citizenship verification requirement from the upcoming reconciliation bill.
The trade groups argued that the provision would represent a significant invasion of privacy, potentially harming hard-working Americans—including active-duty military personnel and citizens living, working, or studying abroad—and could also undermine efforts to combat transnational crime.
“We should not be asking everyday Americans to hand over their sensitive personal information or pay a tax to send money to families serving overseas or studying abroad,” said Penny Lee, President and CEO of the Financial Technology Association. “This proposal not only infringes on Americans’ civil liberties, but also makes it harder to combat transnational crime by pushing cross-border payments into unregulated channels. We urge the Senate to remove this counterproductive and overreaching provision from the reconciliation bill.”
The bill is still in reconciliation.
A Blow to The World’s Poor
The new tax could lead to a 5.6% drop in remittance, said Helen Dempster, citing research from the Center for Global Development. While Mexico stands to lose the most in absolute terms, over 2.6 billion US dollars per year. This is followed by middle-income countries such as India, China, and Vietnam. The tax could have serious consequences—reducing household incomes, weakening consumer demand, and putting pressure on exchange rates, in countries where remittances make up a large share of GNI.
It was likely Dempster added that after the recent cuts to USAID, migrants in the US would increase remittance sending to support friends and family back home. ““For many low- and middle-income countries who rely on both aid and remittances, these two cuts coming from the administration are going to deal a double blow to the world’s poorest people,” says Dempster.
Impact in the US
“Taxing the remittances won’t stop the money from leaving,” says Ana Valdez, President and CEO of The Latino Donor Collaborative. Her organization hears comments like “my mom is gonna get her $1,000 every month, whatever it takes,” and, “if I have to stop going to the movie theater, if I have to stop buying clothes, if I have to reduce my expenses in terms of other outings or hobbies, I will.”
The Latino community has a purchasing power of almost $4 trillion, says Valdez. So when you punish these communities, it will have an impact and slow the economy.
People are sending money that has already been taxed, says Anna. “This is a penalty on the American dream, because immigrants are the American dream.”
By Elembis – Own work, Public Domain, https://commons.wikimedia.org/w/index.php?curid=2155748