New Delhi: The cost for Indians in the US sending money back home will rise, with their total annual outgo is likely to cross USD 1.6 billion as the Trump administration plans to impose a 5 per cent tax on outward remittances.
The estimated outgo is based on data for the 2023-24 period compiled from a recent RBI article.
In President Donald Trump’s big priority bill, there is a proposal for a 5 per cent excise tax on remittance transfers that would cover more than 40 million people, including those holding green cards and H1B visas. The proposed levy won’t be applicable for US citizens.
India’s remittances have more than doubled from USD 55.6 billion in 2010-11 to USD 118.7 billion in 2023-24, according to a recent article published in the Reserve Bank’s March Bulletin.
The article highlights findings of the sixth round of India’s remittances survey conducted for 2023-24. The fifth round of the survey conducted for 2020-21 was published in July 2022.
The results of the sixth round survey highlight the gradual shift in dominance of India’s remittances from the Gulf countries to advanced economies, particularly the US, the UK, Singapore, Canada and Australia. These advanced economies together accounted for more than half of the 2023-24 inward remittances in India.
In 2023-24, the share of the US in India’s total remittances remained largest, rising to 27.7 per cent from 23.4 per cent in 2020-21, as per the article.
A back of the envelope calculation shows that 27.7 per cent share translates to around USD 32.9 billion worth remittances in absolute terms. A 5 per cent tax on USD 32.9 billion would amount to USD 1.64 billion.
The Reserve Bank of India (RBI) article said the cost of a remittance transaction includes two elements –- the fees charged at any stage of the transaction and the exchange rate conversion from local currency to the currency of the recipient country.
It also said that given the fact that inward remittances are largely for family maintenance, the cost of sending cross-border remittances has socio-economic impact and therefore, reducing this cost has been a crucial policy agenda globally for over a decade.
The article has been authored by Dhirendra Gajbhiye, Sujata Kundu, Alisha George, Omkar Vinherkar, Yusra Anees and Jithin Baby, all from the Department of Economic and Policy Research of RBI.
According to the World Bank, India has continued to remain the top recipient of remittances since 2008, with its share in world remittances rising from around 11 per cent in 2001 to about 14 per cent in 2024.
The top five recipient countries for remittances in 2024 were India, with an estimated inflow of USD 129 billion, followed by Mexico (USD 68 billion), China (USD 48 billion), the Philippines (USD 40 billion), and Pakistan (USD 33 billion), World Bank said in a blog in December 2024.
