The measure is now awaiting Senate approval and could take effect from January 1, 2026.
The tax, if enacted, will apply to every international money transfer made by non-citizens, including H-1B visa holders, green card holders, and students on F-1 visas.
“This tax is not based on income but on the act of remitting money abroad. It applies per transaction, regardless of amount,” said CA Kinjal Shah, Secretary, Bombay Chartered Accountants’ Society (BCAS).
What the tax means?
It is classified as an excise tax, which makes it harder to claim any deductions or credits. The remittance provider will deduct the tax at the time of transfer and pay it to the US Treasury.
US citizens and nationals are exempt. If mistakenly charged, they can claim a tax credit — but only if the remittance is made via approved channels.
“There’s currently no provision for non-citizens to claim a credit or offset this tax under US law,” Shah added. “And Indian tax rules don’t allow a foreign tax credit for excise taxes either.”
Real impact on savings
Even though the tax rate was reduced from an earlier proposal of 5% to 3.5%, it still poses a challenge.
Sudhir Kaushik, Co-founder & CEO of TaxSpanner, said: “On a $1,000 remittance, $35 will now go in taxes — down from $50, but still significant. Over a year, that’s $420 lost, which could have gone towards education, healthcare, or investments for families back home.”
He emphasised the need for advance planning. “This is a good time for people to think about how and when they remit money. Efficient financial planning can reduce the long-term hit.”
Who will be affected?
- H-1B visa holders
- F-1 student visa holders
- Green card holders who are not yet citizens
- Anyone with non-citizen residency status
- US citizens are not impacted.
Key scenarios to watch
ESOP sales: Funds from employee stock ownership plan (ESOP) payouts remitted abroad could attract the 3.5% tax.
Investment proceeds: Gains from US investment sales, if transferred overseas, may also come under the tax net.
What you can do
Shah advised individuals to act early. “If you’re planning any major international transfer, try to complete it before January 2026. This will help you avoid the excise tax altogether.”
Others may look into alternative remittance channels.
But experts caution that all methods must follow legal and regulatory norms.
“This is a call for all non-citizen US residents to revisit their financial strategies,” Shah said.
