How will America’s proposed HIRE Act affect India’s $283-billion IT sector?
Indian information technology (IT) services companies, one of the country’s biggest employers, earn more than three-fifths (60%) of their revenue from the US. While they have largely avoided US taxes so far, a new bill seeks to change that by taxing all services exported to US companies.
Mint explains what this means for India’s IT sector.
What is the HIRE Act?
On 5 September, Ohio Senator Bernie Moreno introduced the Halting International Relocation of Employment (HIRE) Act in the US Senate. The bill aims to impose a 25% tax on payments made to foreign entities for services rendered to US individuals or companies, starting 31 December 2025.
The bill also aims to create a ‘domestic workforce fund’ from the money collected through this tax, which would be used to support apprenticeships and workforce development programmes.
The bill would prohibit companies from deducting any taxes on these outsourcing payments.
Why is it a big deal for India’s IT services industry?
According to Senator Moreno’s website, the bill aims “to protect American workers from outsourcing by disincentivising US companies from chasing cheaper wages and hiring foreign workers”.
If and when that is done, large companies in the US will pay less to IT services companies, which in turn will be forced to increase their rates to maintain their operating margins. Four of the country’s big five, save Tata Consultancy Services Ltd, hiked their operating margins in FY25.
What’s next for the bill?
For now, it must be cleared by the House of Representatives, the US Senate, and get the President’s approval to be passed into law. However, experts said large companies would try to stall the passage of the bill by consulting their state representatives as they were dependent on outsourced foreign workers for their tech needs.
What tech challenges does the US face?
American firms don’t have a big enough pool of skilled domestic talent to service their tech needs, which forces them to look overseas. For now, most of their tech is handled by employees based abroad. Even so, most US work visas are sought by tech companies, for roles that require travel to the client’s location.
According to US Citizenship and Immigration Services data, India’s 10 largest IT services companies had about 14,652 workers in the US on H-1B visas as of June 2025. The H-1B visa allows a skilled non-immigrant to work in the US for a limited period.
What does the future hold?
According to experts, the bill is unlikely to pass with a 25% tax. “A 25% tax directly affects every corporation in the US. The hope is that the tax, if levied, will be lower,” said Ashutosh Sharma, vice-president at Forrester Research. If imposed, the tax “will become a matter of negotiation between IT service providers and their clients”, he added, as they will have to increase the cost of services or reprioritise all existing contracts.
A second expert suggested that the cost of service delivery would increase and IT margins would take a beating. “Indian IT outsourcers are desperate for growth in this uncertain macroeconomic environment, which suggests that bargaining power is more with the customer,” said Pramod Gubbi, founder of Marcellus Investment Managers. He added, however, that IT firms may not be willing to let their operating margins suffer.
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