Trump's plan to tax overpayments to injure Indian families costs up to $ 18 billion a year: GTRI | Mint

New Delhi: A US proposal to tax money sent by non-American citizens abroad is raising concern in India. If passed, this 5% tax on overpayments could significantly affect the Indian households and the currency of the country, which may cause India to lose between $ 12 billion and $ 18 billion annually to foreign exchange inflow, according to a report released by the trade research initiative of Trade Tank (GTRI) on Sunday. The tax is part of a larger legislation called “The One Big Beautiful Bill”, which was introduced in the US House of Representatives on May 12. It is aimed at money transfers made by people who are not US citizens, but there live and work there, including those on the work H-1B and H-2A visas. US citizens do not have to pay this tax. Banks and money transfer businesses will collect the tax and send it to the US government every three months. India received $ 120 billion in over payments in 2023-24, with almost 28% from the US, according to GTRI. The Institute estimates that the tax could cause a 10-15% decline in overpayment flow, resulting in a $ 12-18 billion loss annually. “This reduction will reduce the supply of dollars in the foreign exchange market in India and the rupee could weaken by 1-1.5 per dollar. The Reserve Bank of India may need to intervene more frequently to stabilize the currency,” he said. The impact would be particularly felt in countries such as Kerala, Uttar Pradesh and Bihar, where millions of families depend on overpayments for basic needs such as education, healthcare and housing according to the GTRI report. A fall in these funds can reduce household spending, which harms the economy at a time when global challenges and inflation are already hampering life. India is not alone. Other countries such as El Salvador and Mexico, which rely a lot on overpayments, may also have problems. Mexico President Claudia Sheinbaum calls the plan “unacceptable” and has warned that it could lead to “double tax” as workers already pay taxes in the US. “Although the US can earn from a stronger dollar by limiting money outflow, this tax runs the risk of disrupting critical financial support to developing countries. It is a worrying shift in policy that could hinder global economic stability,” said Ajay Srivastava, co-founder of GTRI. More broadly, this tax is a change in US policy towards capital – money that moves across borders more freer than people or goods. By taxing overpayments, the US can delay an important source of income for many families in poorer countries and reduce global economic growth, it says. Earlier Friday, the thinking tank suggested in a report that if Apple the US President Donald Trump’s proposals and plans to leave the iPhone meeting in India could benefit the country. At present, India earns less than $ 30 per iPhone, a large part of which is effectively returned to Apple by production -linked incentives, it reads. “To protect Apple, New -Delhi is reducing import duty on important smartphone components – such as exhibitions, chips and batteries, a move that undermines Indian businesses that want to build a local supply chain,” the GTRI said in its report.