A proposed 5% tax on overseas money transfers by non-citizens could soon significantly increase the cost for Non-Resident Indians (NRIs) in the US to send funds back to India, potentially jeopardizing a critical $32 billion inflow. This concern was raised by Akshat Shrivastava, founder of Wisdom Hatch, who cautioned that it would become more challenging for NRIs to invest in property and stocks in India.

Shrivastava emphasized the magnitude of the issue, pointing out that US NRIs contribute approximately 28% of India’s total remittances, which is double the size of India’s education budget. The bill, supported by Donald Trump and introduced in the US House of Representatives, intends to impose a 5% levy on all international money transfers by non-citizens, irrespective of the amount or purpose. This means that every dollar remitted, whether for family support, property acquisition, or investment in Indian markets, would be subject to this additional tax.

Currently, India imposes a 20% Tax Collected at Source (TCS) on outward remittances by its residents to manage capital outflows. The proposed US tax mirrors this approach, with Shrivastava suggesting that countries are increasingly trying to protect their outflow of capital, thus tightening cross-border money flows globally.

Financial analysts are cautioning that this new tax burden could deter NRIs from making frequent or large remittances, which would directly impact India’s foreign exchange reserves, real estate, and equity markets. With no exemptions or thresholds, even small, routine transfers will be affected. Financial advisors are advising NRIs to finalize any major remittances before the bill potentially becomes law, as compliance loopholes are expected to be minimal.

In summary, the proposed 5% tax on money transfers from the US to India poses a significant financial challenge for NRIs and could have broad economic implications for India, particularly in sectors reliant on NRI remittances.