Investing in India from the US: NRI Tax Rules, Reporting Requirements & GIFT City Benefits Explained

A new piece of legislation—the "One Big Beautiful" Tax Act—is currently under consideration in the United States, proposing a 3.5% tax on outbound remittances. If enacted, this would directly affect millions of Non-Resident Indians (NRIs) residing in the U.S. who send money to their families, invest in Indian assets, or provide for dependents.

Although still at the proposal stage, the implications are serious. It signals a shift in U.S. policy that may soon treat remittances as a taxable activity, prompting NRIs to rethink their financial strategies.

This article explains the impact of the proposed 3.5% remittance tax, provides practical examples, and outlines immediate steps US-based NRIs can take to prepare.

What is the "One Big Beautiful" Tax Act?

This draft legislation aims to amend key aspects of U.S. tax policy, including the introduction of a 3.5% tax on international money transfers initiated by individuals from the United States, regardless of their visa or residency status.

For US-based NRIs, this tax would apply to all outbound remittances—whether for family support, education, medical expenses, or investment in Indian real estate. For instance, a $10,000 remittance would now attract an additional $350 in tax.

Current Scenario: How Remittances Work Today

As of now, remittances from the US to India:

• Are not taxed by either the US or Indian governments.
• Are typically categorized as gifts or personal transfers, exempt under Indian law.
• May require IRS reporting (e.g., Form 3520) if large sums are transferred as foreign gifts, but no tax is directly imposed on the transfer itself.

What Will Change If the Act Is Passed?

If enacted in its current form:

• A 3.5% tax will be levied on all international remittances from the U.S., regardless of purpose.
• Banks, money transfer operators, and fintech platforms will likely collect this tax at source.
• The law may impose stricter reporting and documentation requirements.
• NRIs sending frequent or large sums will face significant new costs.

Illustration

Mr. Arjun, an NRI residing in New Jersey, sends $50,000 annually to India to support his parents and fund his niece's education. Currently, he incurs only bank transfer fees. Under the proposed law, he would pay $1,750 per year as remittance tax.

For many such families, the financial burden could be substantial, particularly for long-term or high-value commitments.

What Should US-Based NRIs Do?

Given the potential implications of the proposed law, US-based NRIs should act proactively to safeguard their finances. Here are some steps to consider:

1. Advance Planned Remittances

If you are planning to remit funds for property purchases, family obligations, or education, consider advancing these transfers before the new 3.5% remittance tax becomes effective. This move can result in substantial savings.

2. Reassess Frequency and Necessity

Evaluate your remittance habits. Not every transfer may be urgent or essential. Consolidating multiple small transfers into fewer, strategic transactions can help reduce the overall tax impact.

3. Explore Joint or Family Accounts in India

Where permissible under U.S. and Indian tax laws, using joint accounts or existing family accounts in India can help you manage remittances efficiently—especially for regular household or dependent-related expenses.

4. Invest via GIFT City Insurance-Linked Products

Consider investing your funds in investment-linked insurance products offered by IFSC units in GIFT City.

These policies are now eligible for full tax exemption under Section 10(10D), as per the Finance Bill 2025, even if the annual premium exceeds ₹5 lakhs provided the policyholder is a non-resident.

Additionally, since these products are typically denominated in foreign currency, NRIs enjoy returns that are shielded from INR depreciation, combining tax-efficiency with currency stability making it an attractive avenue for long-term cross-border investment planning.

5. Maintain Clear Documentation

Whether remitting funds for gifting, education, property, or loan repayment, always keep supporting documents like:

• Gift deeds
• Invoices or contracts
• Relationship proof
• Purpose declarations

These are critical in the event of scrutiny or audit.

6. Consult Cross-Border Tax Professionals

This is a time for precise financial navigation—not guesswork. Speak to a qualified U.S. CPA and an Indian CA with NRI taxation expertise to:

• Optimize your remittance strategy
• Comply with both Indian and U.S. reporting requirements
• Choose the right structure for investments, loans, and gifts under the new framework

Practical Tips before the Change

• Transfer large sums (e.g., for real estate or education) before the tax is enacted
• Bundle discretionary remittances to reduce frequency
• For property investment, consider phased transfers or co-ownership structures
• Avoid informal channels, which may trigger red flags under FATCA and AML regulations
• Keep all records ready for potential scrutiny by IRS or Indian tax authorities

Conclusion

The newly proposed 3.5% remittance tax under the "One Big Beautiful" Tax Act marks a turning point in U.S. tax treatment of international money transfers. For NRIs, it represents the end of a relatively tax-free era for supporting family or investing back home.

While the law is not yet enacted, proactive planning now—advancing key transfers, consulting professionals, exploring GIFT City investments, and optimizing structures—can help mitigate both tax costs and compliance risks.

Being prepared today may mean avoiding higher expenses and stress tomorrow.

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Contributed by: Ajay R. Vaswani, Chartered Accountant – NRI Taxation Specialist

Disclaimer: The views expressed in this blog are the express opinions, views and perspectives of Ajay R Vaswani. They do not in any manner represent or/and reflect the opinions, views and perspectives of HDFC International Life and Re Company Limited, its affiliates, or any related entities.