Over 54 lakh Indians are living in the US, of which more than 33 lakh are in the Persons of Indian Origin (PIO) category, according to Statista.
Saurrav Sood, Practice Leader, International Tax & Transfer Pricing at SW India, said NRIs who are not US citizens will have to pay 5% remittance tax when they are sending payments to their home country. “In effect, a payment of Rs 100 will be effectively a receipt of Rs 95 since Rs 5 will be going to US IRS,” he said, adding there is no clarity whether this remittance tax will be available as a credit to the person making the remittance.
Sood said this does not directly affect the country’s growth but since India is one of the biggest beneficiaries of US remittances sent by the diaspora, there can be a ripple effect.
A US citizen who pays the tax can claim a full refund as a refundable income tax credit if the person has a valid Social Security number on the tax returns and provides proof of tax paid.
“India’s remittance receipts have generally remained higher than India’s gross inward foreign direct investment (FDI) flows, thus establishing their importance as a stable source of external financing. Following a pandemic-induced contraction of 3.6% during 2020-21, remittances to India in the post pandemic period (2021-22 to 2023-24) recorded a resurgence with an average annual growth of 14.3%,” the RBI further added.