The proposed “One Big Beautiful Bill Act” (H.R. 1) in the U.S. Congress remains a focal point of intense debate, particularly regarding its evolving provisions on a tax on remittances. As the bill navigates the intricate legislative process, the drastic changes to the remittance clauses are poised to have a significant and multifaceted impact on South Asian nations, which are heavily reliant on these vital financial inflows.
Initially, the bill’s proposal of a stringent 5 percent tax on all international money transfers by non-U.S. citizens sent shockwaves through diaspora communities globally. However, following considerable lobbying and negotiation, the latest Senate draft, as of June 29, 2025, has scaled back this levy to a mere 1 percent. This significant reduction, while providing some relief, still introduces a new layer of cost for millions of South Asian immigrants residing in the United States.
A Rollercoaster of Revisions
The journey of the remittance tax within H.R. 1 has been a legislative saga of concessions and adjustments. From an initial broad-based 5 percent tax, designed to recoup an estimated $50-100 billion, the House Committee on Rules slashed it to 3.5 percent.
The Senate Finance Committee then introduced critical exemptions for transfers made via financial institutions subject to the Bank Secrecy Act, and those funded by U.S.-issued debit or credit cards, effectively targeting cash-based transfers. The most recent Senate draft further reduced the rate to 1 percent, a move influenced by international pressure, notably from Mexico, and opposition from fintech firms and consumer advocacy groups.
“The One Big Beautiful Bill is now in the Senate’s debate and reconciliation phase,” observes Sandeep Jhunjhunwala, M&A Partner at Nangia Andersen LLP. He highlights a critical concern: “For non-US citizens, especially those from treaty-partner countries, this levy effectively could be a non-creditable, final tax. As a result, it could create an unequal treatment compared to similarly situated U.S. citizens or nationals who can offset it against their income tax liability. This disparity may raise concerns under the non-discrimination clause enshrined in the tax treaty, particularly where the distinction aligns with nationality or residency.”
Financial Ripple Effects on South Asia
The South Asian diaspora in the U.S. collectively remits an estimated $79-80 billion annually to their home countries. India, a top recipient, received approximately $32 billion in 2023-24 from its U.S. diaspora alone. Under the original 5 percent proposal, this could have translated to a staggering $1.6 billion annual tax burden for the Indian diaspora. The current 1 percent tax, while a considerable reduction, still implies an additional annual cost of approximately $320 million for Indian remitters, and a collective $790-800 million for the broader South Asian community.
“From what would have been an acute pain to India (with $83 billion in annual remittances and nearly 28 percent from U.S.-based NRIs alone), the current proposed 1 percent tax may not reduce inflows to such an extent which was envisaged by many experts,” states Rajarshi Dasgupta, Executive Director – Tax, AQUILAW.
For individual remitters, a 1 percent tax means an additional $100 for every $10,000 sent. While exemptions for bank and card-based transfers offer some respite for those utilizing formal channels, the tax disproportionately affects lower-income immigrants who often rely on cash-based transfers through money orders or money transfer operators.
Behavioral Shifts and Economic Vulnerabilities
The imposition of this tax is expected to trigger significant behavioral changes among the diaspora. Many may gravitate towards exempt digital platforms and formal banking channels to avoid the levy, potentially boosting financial inclusion. However, there’s also a risk of driving some remittances underground into informal channels like hawala, which are notoriously difficult to monitor and carry inherent legal risks for senders.
Aditya Bhattacharya, Partner at King Stubb & Kasiva, Advocates & Attorneys, sees a potential silver lining: “Lowering remittance taxes could spark innovative financial solutions. For instance, fintech companies might develop new apps or services tailored for remittances, enhancing security and speed. This could also lead to blockchain-based remittance systems, reducing costs further and increasing transparency.” He adds, “Additionally, it might encourage the creation of micro-saving or investment platforms for migrants, leveraging the increased disposable income.”
Economically, remittances are a vital lifeline for many South Asian economies, contributing significantly to their GDPs (e.g., 7 percent in Pakistan, 6 percent in Bangladesh, 8 percent in Nepal). A reduction in these flows, even a modest one, could impact household incomes, consumption, and local economies, particularly in remittance-dependent regions like Kerala and Punjab in India, Khyber Pakhtunkhwa in Pakistan, and Sylhet in Bangladesh. For Sri Lanka, already grappling with economic fragility, any further reduction in remittance inflows could exacerbate recovery challenges.
India’s Regulatory Oversight Comes into Focus
From an Indian legal perspective, the proposed lowering of the remittance tax presents both opportunities and challenges. “The proposed lowering of the remittance tax under the ‘One Big Beautiful Bill Act’ by US legislators carries significant implications for Indian individuals and businesses engaged in cross-border financial transactions,” notes Vishal Gehrana, Advocate on Record and Partner Designate at Karanjawala & Co.
He elaborates, “From the perspective of an experienced Indian lawyer, such a measure would likely reduce the overall cost of remitting funds from the United States to India, thereby encouraging greater inflows of legitimate capital,” adding “This could benefit Indian families, students, and professionals who rely on remittances for education, healthcare, and investment purposes. Additionally, Indian businesses with US-based clients or subsidiaries may find it more cost-effective to repatriate profits or settle cross-border obligations, potentially enhancing bilateral trade and investment ties between the two countries.”
However, Gehrana also emphasizes the critical need for vigilance on the Indian side. “The lowering of remittance tax also requires a careful review of compliance and regulatory aspects on both sides. For India, increased remittance inflows could require enhanced monitoring under the FEMA (Foreign Exchange Management Act) and the PMLA (Prevention of Money Laundering Act) to ensure that the relaxed tax regime is not misused for illicit transfers or tax evasion.”
He concludes, “Indian authorities may need to strengthen due diligence and reporting requirements for authorized dealers and financial institutions handling such transactions. Overall, while the proposed change is poised to facilitate legitimate economic activity and deepen financial linkages, it also highlights the need for robust regulatory oversight to safeguard the integrity of cross-border financial flows.”
Diplomatic Maneuvers and Future Uncertainties
The proposed tax has not gone unnoticed by South Asian governments. The Indian Ministry of External Affairs has already voiced concerns, and diplomatic talks with the U.S. are reportedly ongoing. India, Pakistan, and Bangladesh are likely to leverage their strategic partnerships with the U.S. to push for further exemptions or reductions. Diaspora advocacy groups in the U.S. are also actively lobbying against the tax, highlighting its potential unfairness to legal immigrants who contribute significantly to the American economy.
The bill’s final form remains shrouded in uncertainty as it awaits Senate debate and potential reconciliation with the House version. Opposition from Democrats and international stakeholders, coupled with legal and enforcement challenges, could lead to further adjustments. Rajarshi Dasgupta underscores this uncertainty: “The actual impact is contingent upon the provisions contained in the final law supposed to be passed by July 4, 2025.”
Ultimately, the “One Big Beautiful Bill Act” presents a delicate balancing act for U.S. lawmakers. While framed as a measure to curb illegal immigration and generate revenue, its real-world implications extend far beyond American borders, directly influencing the financial stability and well-being of millions of families across South Asia. The coming weeks will determine the precise contours of this evolving policy and its enduring impact on global remittance flows.
