A clause hidden within Donald Trump's expansive "One, Big, Beautiful Bill Act" proposes a 3.5% levy on remittances sent abroad by foreign workers. This includes green card holders and temporary visa holders such as those with H-1B visas. For countries like India, which tops the global list of remittance recipients, this tax could significantly impact their economy. In 2023, Indians overseas transferred $119 billion back home, largely sourced from the U.S. The potential effects extend to other major beneficiaries like Mexico, China, the Philippines, France, Pakistan, and Bangladesh. Experts warn that imposing such a tax could lead to a rise in informal money transfers and weaken one of India's most reliable sources of external funding.

The proposed tax has sparked concerns about its broader implications. According to Ajay Srivastava from the Delhi-based think tank Global Trade Research Initiative (GTRI), a 10-15% reduction in remittances could cost India between $12 and $18 billion annually. This would tighten dollar availability and pressure the rupee. Households in states such as Kerala, Uttar Pradesh, and Bihar, where remittances fund essentials like education, healthcare, and housing, might face significant challenges. A decrease in inflows could shrink domestic savings and reduce investments in both financial and physical assets, prioritizing basic needs over long-term planning.

India's position as a leading remittance recipient is well-established, accounting for 14% of global remittances in 2024. Its migrant population grew from 6.6 million in 1990 to 18.5 million in 2024. While the Gulf remains a key destination, skilled migration to advanced economies, particularly the U.S., has surged due to India's IT sector influence. The U.S. leads worldwide remittance sources, contributing nearly 28% of global remittances in 2023-24. A study by the Center for Global Development suggests that the proposed tax could sharply reduce formal transfers, impacting nations like Mexico, India, China, Vietnam, and several Latin American countries.

There is still uncertainty surrounding the tax, pending Senate approval and the President’s signature. Dilip Ratha, World Bank lead economist for migration and remittances, notes that the tax applies to all non-citizens, including embassy staff and UN/World Bank personnel. However, those paying taxes can claim credits, meaning the tax primarily affects unauthorized migrants. Dr. Ratha speculates that migrants may resort to informal methods to avoid costs, such as carrying cash personally or using alternative networks like hawala or cryptocurrencies. Despite the tax, the economic motivation for migration—assisting family members—remains strong, suggesting limited deterrence.

If enacted, the remittance tax could reshape global financial flows, affecting not only India but also numerous other countries reliant on these funds. It may prompt a shift toward informal channels, undermining official records and complicating efforts to track and manage international financial transactions. As discussions continue, the potential ripple effects underscore the importance of considering all stakeholders involved in this complex issue.