US President Trump's 5% tax on remittances to significantly impact Indian households: GTRI

US President Donald Trump's decision to impose a 5 per cent tax on international remittances sent by non-citizens will significantly impact Indian households, said Global Trade Research Initiative (GTRI), a trade-focused research Group, in its latest report.

The proposed US legislative move has triggered alarm across the globe, particularly in India, which has been one of the biggest beneficiaries of the US remittances. These provisions are part of a major legislative package titled 'The One Big Beautiful Bill', introduced in the US House of Representatives on May 12.

If enacted, the legislation would target money transfers made by non-US citizens, including green card holders and workers on temporary visas like H-1B and H-2A. The proposed legislation exempts American citizens.

As per the rules, the tax would be collected by banks and remittance service providers, who would remit the funds quarterly to the US Treasury.

For India, the stakes are high. The country received USD 120 billion in remittances in 2023-24, with nearly 28 per cent originating from the United States. A 5 per cent tax could significantly raise the cost of sending money home, GTRI said in the statement, which is prepared by its founder and former Indian trade service officer Ajay Shrivastava.

The report anticipates that a 10-15 per cent drop in remittance flows could result in a USD 12-18 billion shortfall for India annually. That loss would tighten the supply of US dollars in India's foreign exchange market, putting modest depreciation pressure on the rupee, the report added.

The Reserve Bank of India may be forced to intervene more frequently to stabilise the currency. The rupee could weaken by Rs 1-1.5 per US dollar if the remittance shock plays out fully, the report added.

"The pain wouldn't stop at the exchange rate. In states like Kerala, Uttar Pradesh, and Bihar, millions of families rely on remittances to cover essential expenses such as education, healthcare, and housing. A sudden decline in these flows could hit household consumption hard--at a time when the Indian economy is already navigating global uncertainty and inflation pressures," the GTRI report added.

Globally, India is not alone. Countries like El Salvador, where remittances account for over 25 per cent of GDP, and Mexico (4 per cent of GDP) could also see painful repercussions, the GTRI added in the report.