The US HIRE Act, currently under discussion, could be very disruptive, shaking the $100 billion Indian IT outsourcing industry by levying a 25% excise tax on outsourcing payments made by American companies to overseas service providers. This legislation, introduced by US Senator Bernie Moreno in 2025, aims to eliminate the cost advantage that Indian IT companies have enjoyed over the years by taxing payments for contracted IT and BPO services to India. Additionally, it calls for an end to US tax breaks for these expenses, which would make outsourcing far more expensive.
The tax hike would have the following double impact: First, it would increase the effective levy on payments for outsourcing by 45-60%–a serious threat to India\’s USD 88.8-billion IT sector that gets more than 60% of its export earnings from the US. The brunt is being borne by marquee firms such as Tata Consultancy Services (TCS), Infosys, and Wipro, which earn half or more of their total revenue from US clients. The tax would flow to domestic US workforce training and apprenticeships—a mirror of protectionist policies designed to keep jobs in America. American companies, in turn, may postpone or renegotiate contracts, raising their costs and reducing outsourcing volume. In addition, freelancers, startups, and global capability centers (GCCs) serving a US client base would be stressed.
In response, Indian IT companies are already altering course — expanding into Asia-Pacific, the Middle East, and Australia, moving towards innovation partnerships rather than cost arbitrage, investing in nearshoring (with US time zones as their preference), and banking on domestic Indian IT spending, which is also growing. The new law is designed to prevent winners from emerging solely on price and to push Indian companies to become innovation-led partners in areas such as AI, cybersecurity, and digital services. Whether the bill will pass is unclear, but it highlights a tectonic shift in global IT outsourcing dynamics—and India’s decades of leadership in the sector.
India’s opposition Congress and industry bodies have raised fears that the bill could threaten India’s IT sector, and they’ve called for diplomacy to soften its impact. The result of this policy landscape on India’s IT exports, employment, and economic contribution from one of the country’s flagship industries could be profound.
Background of the HIRE Act and Proposed Tax
- The HIRE (Halting International Relocation of Employment) Act, passed in 2025, would impose a 25% excise tax on payments made by US companies to foreign service providers. This law is primarily aimed at outsourcing to countries such as India.
- It eliminates the tax breaks that US companies currently receive for outsourcing costs.
- Tax revenue will be used to fund job training programs, apprenticeships, and workforce development in the US.
- When combined with other state and local taxes, the effective tax burden could rise to almost 60%.
Impact on India’s IT Outsourcing Sector
India’s IT and Business Process Management (BPM) services exports are worth more than $283 billion, which is more than 7% of the country’s GDP.
- The US is the largest market for India’s IT companies, such as TCS, Infosys, and Wipro. About 60% of India’s IT export revenue (about $150 billion) comes from US clients.
- If the HIRE Act passes, it will make it more expensive for US companies to hire IT services from other countries. This could mean that contracts need to be renegotiated, that work is delayed, or that less work is done.
- Indian IT companies that rely heavily on US clients will have to deal with lower revenue and possibly changes in how they hire and deliver services.
Corporate and Industry Reactions
Big Indian IT companies are working harder to cut down on their reliance on the US by:
- Expanding their presence in Asia-Pacific, the Middle East, and Australia.
- Moving from outsourcing based on cost to partnerships based on innovation that focus on AI, cybersecurity, and digital transformation.
- Putting money into nearshore centers that are in the same time zone as the US.
- More and more focus on serving the rapidly growing Indian IT market.
Political and Economic Implications
The bill aligns with US economic policies that protect jobs at home by making outsourcing to other countries less financially appealing.
- Indian politicians, including members of Congress, have warned that the bill could have a significant effect on the economy and have called for diplomatic efforts to address concerns.
- Indian IT workers’ ability to work on-site in the US has already been made more difficult by high taxes, strict H-1B visa rules, and higher fees. This adds to the sector’s uncertainty.
Outlook
- Though the bill’s final fate in the US legislature remains unclear, it signals a strategic shift requiring Indian IT companies to evolve beyond cost arbitrage.
- To stay competitive worldwide, the sector needs to embrace new ideas, expand into new areas, and offer services that add value.
This could be one of the most significant shifts in India’s IT outsourcing industry in decades, reshaping its place in the global technology ecosystem.
This detailed look at the situation shows how the US’s proposed outsourcing tax could hurt India’s IT export sector, which is worth about $100 billion. This shows how important it is for India to adapt its strategy and talk to other countries.