AskNRIGuru

The US 1% remittance tax in 2026: what it means for NRIs sending money to India

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In short

  • A 1% US excise tax applies to remittance transfers made after 31 December 2025 that are funded with cash, money orders, cashier's checks or similar instruments.
  • Transfers funded from a US bank account, or with a debit or credit card, are not taxed.
  • IRS proposed regulations released in April 2026 add a $15 de minimis exclusion and tax the amount sent, not the fee.
  • India's TCS is a separate charge on residents remitting money out of India under LRS; it does not apply to money arriving in India.

Since 1 January 2026, the US charges a 1% excise tax on some money sent abroad. It applies only when you pay the remittance provider with cash, a money order, a cashier’s check or a similar physical instrument. If the transfer is funded from your US bank account or with a debit or credit card, there is no tax. For most NRIs who send money to India online, the practical fix is to change how they pay, not how much they send.

What the law says

The tax is in Section 4475 of the Internal Revenue Code. It was added by the law Congress titled the One Big Beautiful Bill Act, signed on 4 July 2025. It applies to remittance transfers made after 31 December 2025.

The rate is 1% of the amount transferred.

Who pays and who collects

The sender owes the tax. Under the proposed regulations, a sender is a consumer in a US state, territory or Washington DC. The transfer must be mainly for personal, family or household purposes.

The remittance transfer provider collects it at the time of the transfer. Providers report and pay the tax quarterly on IRS Form 720. If a provider fails to collect, it becomes liable for the tax itself.

The tax does not depend on citizenship or visa status. An H-1B worker, a green card holder and a US citizen are treated the same. What matters is how the transfer is funded.

What is taxed

The statute taxes a transfer when the sender gives the provider:

  • cash
  • a money order
  • a cashier’s check
  • a similar physical instrument

The proposed regulations add traveller’s checks to that list. A transfer also counts as cash-funded if the provider cashes your personal check and sends that cash.

The tax base is the amount that will reach the recipient, including any promotional bonus. Service fees and state taxes charged separately are left out.

What is exempt

The statute exempts transfers funded by:

  • money withdrawn from an account at a US financial institution covered by the Bank Secrecy Act, such as an FDIC-insured bank or a credit union
  • a debit or credit card issued in the US

The proposed regulations go further. They treat these as non-taxable funding methods:

  • personal and business checks
  • ACH transfers
  • general-use prepaid cards
  • debit and credit cards issued in any country

There is an anti-avoidance rule. Buying a prepaid card with cash and immediately using it for a transfer can be treated as a cash-funded, taxable transfer.

Transfers of $15 or less are excluded under the proposals.

Where the IRS rules stand

Treasury and the IRS released proposed regulations (REG-114499-25) on 10 April 2026. They were scheduled for Federal Register publication on 13 April 2026, with a 60-day comment period.

Once final, the rules will apply to calendar quarters beginning on or after publication. Until then, providers may rely on the proposals if they follow them fully and consistently. Notice 2026-52 extended penalty relief for providers while the rules are finalised.

Because the rules are still proposed, details such as the treatment of prepaid cards and foreign cards could change. Check IRS.gov or your provider’s terms before relying on any one funding method for large transfers.

The proposals do not give senders a credit against income tax. The refund route they describe is for a transfer that is cancelled or expires, with the money returned to the sender.

How this differs from India’s TCS

NRIs often confuse the US tax with India’s tax collected at source (TCS) on foreign remittances. They are unrelated.

US remittance tax India’s TCS on LRS remittances
Law IRC Section 4475 Section 394, Income-tax Act, 2025
Direction of money Out of the US Out of India
Who it hits Anyone sending from the US with cash-type funding Resident individuals remitting under LRS
Rate 1% 20% above Rs 10 lakh a year for most purposes; 2% above Rs 10 lakh for education or medical treatment
Nature Final excise tax Advance tax, adjustable against income tax or refundable
Avoidable by funding method Yes No

The Liberalised Remittance Scheme (LRS) is only for residents of India under FEMA. NRIs moving money out of India use a different route. They repatriate from NRO accounts up to USD 1 million per financial year, with Forms 145 and 146 (old 15CA and 15CB).

Money you send from the US into India does not attract TCS, because TCS is collected only on remittances going out of India.

Worked example: cash counter versus bank-funded transfer

Arjun works in New Jersey. He sends $2,000 to his parents in Lucknow every month. He has been paying cash at a remittance counter, which charges an $8 fee.

Cash-funded transfer

  • US tax per transfer: $2,000 × 1% = $20
  • The $8 fee is not part of the tax base
  • Annual tax: $20 × 12 = $240

Bank-funded transfer

He links his US checking account to the same provider and sends the same $2,000 by ACH.

  • US tax per transfer: $0
  • Annual tax: $0

Bonus offers. The proposed rules include an example of a $1,000 cash transfer with a $5 promotional bonus. The tax is 1% of $1,005, which is $10.05.

At the Indian end. Whether Arjun pays tax or not, his parents receive the same rupee amount, subject to the exchange rate. No TCS or Indian tax arises on receipt.

Practical tips for US-based NRIs

  • Fund from your bank account. ACH or wire from a US checking account is outside the tax.
  • Use a card if you prefer. US-issued debit and credit cards are exempt. Credit card funding may carry cash-advance fees from your card issuer.
  • Deposit cash first. If your earnings come in cash, deposit them in your US bank account and send from there. The proposed rules treat account withdrawals as exempt. Confirm with your provider, since the rules are not yet final.
  • Avoid money orders and cashier’s checks for remittances. Both are taxed.
  • Choose the right Indian account. Money sent from abroad can go into an NRE account, which is fully repatriable. Our account selector explains the choice.
  • Keep records. Save transfer receipts showing the funding method. They help if a provider charges the tax in error.
  • Large family gifts. Gifts from the US to India can raise separate US gift-tax reporting questions. A chartered accountant or US tax adviser can check your position.

Common mistakes

  • Thinking all remittances are taxed. Only cash-type funding attracts the 1% tax.
  • Assuming online providers always charge it. Online transfers funded from a bank account or card are exempt.
  • Splitting cash transfers to dodge the tax. The $15 exclusion is tiny, and the IRS can recharacterise transactions designed to avoid tax.
  • Confusing it with India’s TCS. TCS applies to residents of India sending money out of India, not to money arriving from the US.
  • Expecting a credit on your US return. The proposals offer no income tax credit for the remittance tax.
  • Buying a prepaid card with cash just before sending. The anti-avoidance rule can make that transfer taxable.

What to do next

Sources

This guide explains the rules as they stood on 25 October 2026. It is general information, not tax, legal or financial advice. Rules change, and individual cases have exceptions, so confirm your position with a chartered accountant before acting. Spotted an error? Tell us and we will correct it.