FOR Mr. Donald Trump, whatever he does or proposes to do, has to be 'beautiful' and more importantly for him, something that has never been done before in the history of the United States. Following that train of thought, we already have his 'reciprocal tariff' announced on April 2,2025 that has already disrupted world trade painstakingly built up over the years on the principle of free trade. Being reciprocal, the tariffs have to be negotiated bilaterally and deals have to be made with the USA. Mr Trump avers that he is essentially a businessman and a deal maker. The calculation is that the other party in the game will have much less leverage in any negotiation with the USA involving give-and-take, thereby putting the US in the winning position all the time.

Considering the fact that the US is the largest market for almost anything, more than 150 countries are reportedly lined up for bilateral negotiations. A bilateral trade deal with India is in the making for a long time and was speculated to be the very first deal that could be announced under the second Trump regime. However, that has not happened and so far, the USA has only the deal with the UK to show for. In the meantime, world leaders coming to the White House are being routinely humiliated in front of the Press perhaps to press home the point of American strength. Mr Trump has already imposed a tariff of 10% on almost all imports in the USA and that in itself is much higher than the average tariff of about 2.5% that was in place so far. This is apart from some special sectoral tariffs on steel etc at varying rates.

The European Union being a trading bloc has some heft in the negotiations and apparently the negotiations were not going anywhere and so, Mr Trump suddenly threatened a 50% tariff on all imports from the EU starting June 1 st. The latest report is that following a call from Ms. Ursula Von Der Leyen promising swift advance in the talks in this regard, Mr. Trump has postponed the same to July 9, 2025.

Mr Trump's main rival is China and it has been selected for special treatment although there is some climb down from the original position. Having promised that he will bring manufacturing that was outsourced to the 'factory of the world'- China back to the USA, he has also announced his disapproval for Apple that had the main manufacturing activity in China and wanted to move the production/assembly facility to India. Mr Trump disapproved of the move if products manufactured/assembled in India was to be sold in the USA and has recently announced that all imported iPhones sold to US consumers would henceforth suffer 25% tariff/. Subsequently, he has included Samsung also in the list. In TV debates, it is being reported that it is just not feasible to sell iPhones in the USA at its current price of approximately $ 1000 for anything less than $3000 if the same were to be manufactured in the USA and that even if the project is undertaken, it will take at least 5-6 years for building up the manufacturing facility.

As for his priority in the area of manufacturing in the USA, on 26th of May, Mr. Trump clarified to reporters. "We're not looking to make sneakers and T-shirts." "We want to make military equipment, big things, AI, computers, chips, tanks, and ships." i

So, is the textile industry out of the woods? One really does not know. What is clear though is that such daily skirmishes and policy flip-flops only engender uncertainty that businesses tend to avoid. Economists have also been warning about the scarcity and price rise and increase in deficit arising out of the resultant chaos but Mr Trump moves on.

All these actions on the trade front were done through Executive Orders and there is no legislative imprimatur on these actions so far. But tax is the domain of the legislature that has so far been skirted on the specious plea of national emergency. Nevertheless, a budget has to be passed. Fortunately for Mr Trump, the Republicans enjoy a slim majority at the moment in both the Houses although securing a majority is not always guaranteed. Mr. Trump has been urging the lawmakers to pass the budget through a process called reconciliation whereunder the budget will be passed for the next year. According to Investopedia- 'a reconciliation bill requires that each committee write a bill outlining how the parts of government that fall under their purview will spend, save, or raise money. Then, the Budget Committee consolidates all the individual plans into one big bill that cannot be blocked by a "filibuster" in the Senate. The Bill must however pass the full House of Representatives, the Senate must create its own version, and the two chambers of Congress must hammer out any differences' ii

It is pursuant to this process that on the 22 nd May, 2025, in the early hours and after night long wrangling that the Reconciliation Bill was finally passed in the House by a majority of just one - 215-214 with two Republican Representatives voting against and one more Republican Representative voting 'Present'. A few of the Representatives from both the parties apparently missed voting. The Bill now moves to the Senate and if all the Senators vote according to the party line, the Bill will be passed as the Republicans currently hold a 53-47 majority. However, if the Senate makes any change in the Bill, it will have to be passed in the House again.

The 1116 pages Reconciliation Bill has many parts - there is a defence portion, a border security portion, an education portion, a health care portion, and the tax portion. Title XI of the Bill introduced on May 9, 2025 by the House Ways and Means Committee is titled - "The One, Big, Beautiful Bill " and starts at page 728 . Title XI has four sub-titles - Subtitle A- Make American Families and Workers Thrive Again ; Subtitle B- Make Rural America and Main Street Grow Again ; Subtitle C- Make America Win Again and a very prosaic Subtitle D- Increase in Debt Limit.

Subtitle A in its turn has 3 parts- Part 1-Permanently Preventing Tax Hikes On American Families And Workers, Part 2-Additional Tax Relief For American Families And Workers, Part 3-Investing In Health Of American Families And Workers.

Subtitle B also has 3 parts- Part 1-Extension Of Tax Cuts And Jobs Act Reforms For Rural America And Main Street; Part 2-Additional Tax Relief For American Families And Workers, Part 3-Investing In Health Of American Families And Workers.

Similarly, Subtitle C is again divided in 3 parts with catchy titles- Part 1-Working Families Over Elites; Part 2- Removing Taxpayer Benefits For Illegal Immigrants and Part 3-Preventing Fraud, Waste, And Abuse.

It is under Subtitle C, Part 2 that the provision relating to excise tax on remittances is to be found and this provision has in particular caught the attention of the commentators in India. Before examining the said provision, we may note the gist of only some of the provisions mostly relating to individual taxation. There are also changes to business taxation and some of the changes will affect international taxation and will be discussed separately.

In his first term, Mr Trump had introduced tax cuts for both corporates and individuals through his Tax Cuts and Job Act, 2017. However, while the tax cuts for the corporates were made permanent, those for individuals were temporary and were to expire in 2025. Through this Bill, the tax cuts for individuals have also been made permanent. The current tax schedule for individuals in the USA is as follows: iii

(Source: Tax Foundation: https://taxfoundation.org/blog/2026-tax-brackets-tax-cuts-and-jobs-act-expires/)

The reconciliation bill therefore makes permanent reduced income tax rates from 2017 for individuals, trusts, and estates. Some of the other noteworthy changes in the Bill are as follows. The Bill-

- Makes permanent the standard deduction from 2017 and temporarily enhances it through 2028.

- Makes permanent the 2017 repeal of personal exemptions.

- Increases the state and local tax (SALT) deduction cap from $10,000 to $30,000 for taxpayers earning less than $400,000 per year. The cap would phase down by 20 percent for income above $400,000 until it reaches $10,000. (The amount has been revised upwards at the time of the passage of the Bill)

- Makes permanent the doubled Child Tax Credit (CTC) of $2,000 per child from 2017. For tax years 2025–2028, the bill would increase the CTC to $2,500 per child.

- Makes permanent and enhances the increased estate and gift tax exemption from 2017 . For 2026, the exemption amount would be $15 million ($30 million for couples) and would be indexed annually for inflation.

- Permanently increases or modifies employer-provided child care, paid family and medical leave, and adoption tax credits.

- Eliminates taxes on qualified tips, overtime pay, and car loan interest through 2028.

- Provides a $4,000 deduction for seniors with a modified adjusted gross income up to $75,000 ($150,000 for couples)-in place of making social security payments tax-exempt.

- Creates a tax-preferred savings account for children under the age of eight.

This provision creates Money Accounts for Growth and Advancement (the " MAGA accounts "), a new kind of savings account designed to incentivizing education, entrepreneurship, and homeownership while promoting financial security. Starting January 1, 2026, parents of any child under the age of eight years old may open a MAGA account for their child. These accounts allowable for children born before January 1, 2024, are eligible to receive contributions from parents, relatives, and other taxable entities as well as non-profit and government entities facilitated by the Treasury Department. To be eligible to open an account, the child must be a U.S. citizen and at least one parent must provide their Social Security Number. MAGA account funds must be invested in a diversified fund that tracks an established index of U.S. equities. Taxable entities may contribute up to $5,000 annually of after-tax dollars to a MAGA account. The $5,000 contribution limit is indexed for inflation.

- The government would provide $1,000 for children born from 2025 through 2028 . The provision allows $5,000 of pre-tax annual contributions; available when the child turns 18. iv

All these tax breaks along with increase in spending on defence and border security for controlling immigration means that some new sources of revenue will have to be found and cuts have to be made in some other areas even if the budget is not balanced. One such area is a proposal to impose an excise tax on remittances from out of the USA and the same has been widely reported in the Indian media. But, as mentioned earlier, this provision may not really be for finding additional revenue but seems to be part of the broader issue of controlling illegal immigration.

Foreign remittances are indeed an important component of the Indian economy and is a reliable source for our current accounts besides helping manage the foreign exchange reserve. According to world Bank Data, in 2024 India was the number one recipient of remittances with 129,100 bn USD constituting 3.3 % of our GDP followed by Mexico in the second place with 66,240 bn USD and 3.7% of its GDP. Philippines got 38,049bn USD that constituted 9.4% of its GDP. Other South Asian Nations also receive significant remittances- Pakistan at USD 30,176 bn constituting 8.1% of its GDP, Bangladesh received USD 21,505bn representing - 4.7% of its GDP while Nepal got USD 92923bn constituting a whopping 22.8% of its GDP.

In so far as the source of the remittances to India are concerned, the USA has replaced the UAE as the number one source. According to a Financial Times article, the source of total remittances into India the share of the USA as a % was as follows: USA- 27.7%, UAE-19.2%, UK-10.8%, Saudi Arabia- 6.7%, Singapore- 6.6%, Kuwait-3.9%, Qatar-4.1% and Canada- 3.8%. v

Considering the importance of remittances and notwithstanding the objective of stopping illegal immigration, the fear is that such kinds of taxes may be a template for other countries/ organisations to follow. Therefore, it will be instructive to reproduce the text of the entire provision even though the same may change before final adoption.

SEC. 112105. EXCISE TAX ON REMITTANCE TRANSFERS.

(a) IN GENERAL. -Chapter 36 is amended by inserting after subchapter B the following new subchapter:

''Subchapter C-Remittance Transfers

''Sec. 4475. Imposition of tax.

''SEC. 4475. IMPOSITION OF TAX.

''(a) IN GENERAL. - There is hereby imposed on any remittance transfer a tax equal to 5 percent of the amount of such transfer .

''(b) PAYMENT OF TAX. -
''(1) IN GENERAL. -The tax imposed by this section with respect to any remittance transfer shall be paid by the sender with respect to such transfer.

''(2) COLLECTION. - The remittance transfer provider with respect to any remittance transfer shall collect the amount of the tax imposed under subsection (a) with respect to such transfer from the sender and remit such tax quarterly to the Secretary at such time and in such manner as provided by the Secretary.

''(3) SECONDARY LIABILITY. -Where any tax imposed by subsection (a) is not paid at the time the transfer is made, then to the extent that such taxis not collected, such tax shall be paid by the remittance transfer provider .

''(c) EXCEPTION FOR REMITTANCE TRANSFERS SENT BY CITIZENS AND NATIONALS OF THE UNITED STATES THROUGH CERTAIN PROVIDERS. -

''(1) IN GENERAL. -Subsection (a) shall not apply to any remittance transfer with respect to which the remittance transfer provider is a qualified remittance transfer provider and the sender is a verified United States sender .

''(2) QUALIFIED REMITTANCE TRANSFER PROVIDER. -For purposes of this subsection, the term 'qualified remittance transfer provider' means any remittance transfer provider which enters into a written agreement with the Secretary pursuant to which such provider agrees to verify the status of senders as citizens or nationals of the United States in such manner, and in accordance with such procedures, as the Secretary may specify.

'(3) VERIFIED UNITED STATES SENDER. -For purposes of this subsection, the term 'verified United States sender' means any sender who is verified by a qualified remittance transfer provider as being a citizen or national of the United States pursuant toan agreement described in paragraph (2).

''(d) DEFINITIONS. -For purposes of this section, the terms 'remittance transfer', 'remittance transfer provider', 'designated recipient', and 'sender' shall each have the respective meanings given such terms by section 920(g) of the Electronic Fund Transfer Act (15 U.S.C. 1693o-1; relating to ''Remittance Transfers'').

''(e) APPLICATION OF ANTI-CONDUIT RULES. -For purposes of section 7701(l) with respect to any multiple- party arrangements involving the sender, a remittance transfer shall be treated as a financing transaction.''.

(b) REFUNDABLE INCOME TAX CREDIT ALLOWED TO CITIZENS AND NATIONALS OF THE UNITED STATES FOR EXCISE TAX ON REMITTANCE TRANSFERS. -Subpart C of part IV of subchapter A of chapter 1 is amended by inserting after section 36B the following new section:

''SEC. 36C. CREDIT FOR EXCISE TAX ON REMITTANCE TRANSFERS OF CITIZENS AND NATIONALS OF THE UNITED STATES.

''(a) IN GENERAL. -In the case of any individual, there shall be allowed as a credit against the tax imposed by this subtitle for any taxable year an amount equal to the aggregate amount of taxes paid by such individual under section 4475 during such taxable year.

''(b) SOCIAL SECURITY NUMBER REQUIREMENT. -

''(1) IN GENERAL. -No credit shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year-

''(A) the individual's social security number, and

''(B) if the individual is married, the social security number of such individuals' spouse.

At the time of the final passage of the Bill in the House, the rate of the levy has been reduced to 3.5%. It has also to be remembered that none of the provisions and the amounts mentioned is final. Between now and the final passage of the Bill, it is quite likely that there may be further changes.

Remittances constitute the raison d'être of most migrations, legal or otherwise. By making it difficult for migrants to transfer money to their families, the Republican lawmakers expect that illegal migration to the USA will come down. That may be the reason why there is an exception for the American citizens and nationals for the remittance excise tax.. But from the language of the Bill as reproduced earlier, it seems that the remittance tax will be first charged and the citizens and nationals can subsequently claim refund. Whether illegal immigration will finally abate as a result, or some other loophole is invented is yet to be seen.

There may also be legal challenges considering that the remittance tax is paid from out of the tax paid income and unlike the TCS on LRS in force in India, this tax is final and cannot be adjusted against any tax payable by the remitter. Therefore, it may amount to double taxation of the same income. These issues have already been flagged and may perhaps be addressed in the final version.

Just when I was about to send off this piece this morning, comes the news that The Manhattan based Court of International Trade has ruled that most of the tariffs including the universal tariff of 10% and the reciprocal tariffs are unconstitutional and invalid. From the news reports, it appears that the Court has rejected the assumption of emergency powers by the President and has held that the power to impose such tariffs rests exclusively on the Congress. Interestingly, one of the Administration's arguments apparently was that the legal setback could change the course of an "asymmetric" trade truce with China and revive the India-Pakistan conflic t. Officials claimed that Trump used his tariff power to broker a ceasefire between India and Pakistan earlier in May, after both nuclear-powered neighbours were involved in a conflict following a terror attack by Pakistan-based terrorists in Jammu and Kashmir's Pahalgam on April 22. vi

According to Reuters, the court observed: "The court does not pass upon the wisdom or likely effectiveness of the President's use of tariffs as leverage," a three-judge panel said in the decision to issue a permanent injunction on the blanket tariff orders issued by Trump since January. "That use is impermissible not because it is unwise or ineffective, but because [federal law] does not allow it."

The judges also ordered the Trump administration to issue new orders reflecting the permanent injunction within 10 days. The Trump administration minutes later filed a notice of appeal and questioned the authority of the court. vii

1 https://economictimes.indiatimes.com/news/international/global-trends/tanks-not-t-shirts-what-trump-really-wants-from-tariffs/articleshow/121401756.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

2 Investopedia-https://www.investopedia.com/what-exactly-is-the-one-big-beautiful-bill-republican-gop-budget-update-11739348

3 https://taxfoundation.org/data/all/federal/2025-tax-brackets/

4 For detailed section -wise explanation as put out by the House Ways and Means Committee, see- https://waysandmeans.house.gov/wp-content/uploads/2025/05/The-One-Big-Beautiful-Bill-Section-by-Section.pdf

5 India's remittance tax woes in Trump's 'big, beautiful' bill- available at: https://www.ft.com/content/1803e03d-9996-46cd-beef-a6694edaf68e

6 https://www.ndtv.com/world-news/us-court-rules-trump-overstepped-his-authority-with-liberation-day-tariffs-on-imports-8533461

7 https://www.reuters.com/world/us/us-court-blocks-trumps-liberation-day-tariffs-2025-05-28/