US HIRE Bill Explained: Could A 25% Outsourcing Tax Change The Game For Indian IT?

Last Updated:September 10, 2025, 09:28 IST

With Indian IT firms earning over half their revenues from US clients, the HIRE Bill could directly affect a $250 billion industry

Over the past three decades, India has become the largest global hub for outsourced IT services. (Representative image)

Earlier this month, a new bill was introduced in the United States Senate that goes directly to the heart of how global companies run their operations. The Halting International Relocation of Employment (HIRE) Act, tabled by Ohio Republican Senator Bernie Moreno, seeks to discourage American companies from outsourcing jobs overseas.

The proposal comes with three key provisions: a 25 per cent tax on payments made to foreign firms for services used by American customers, a ban on deducting those expenses from taxable income, and the creation of a Domestic Workforce Fund to support training and apprenticeships in the US. Moreno has argued that American graduates are struggling to find work while companies send jobs abroad in search of cheaper wages.

Because US companies have relied heavily on overseas talent to cut costs, particularly in technology and business services, the bill is being closely followed in India. Over the past three decades, India has become the largest global hub for outsourced IT services, handling everything from software development to back-office processes for Fortune 500 firms.

What Does The US HIRE Act Actually Say?

The bill defines “outsourcing payments" broadly to include fees, royalties, service charges and other payments made to foreign entities if the benefit of that work goes to consumers in the United States. These payments would attract a 25 per cent tax. Companies would no longer be able to treat such costs as deductible business expenses.

Money collected would go into a Domestic Workforce Fund, earmarked for retraining, apprenticeships and other schemes designed to strengthen the American labour pool. If passed, the changes would apply to payments made after 31 December 2025.

Why Is Outsourcing In The Spotlight Again?

For decades, outsourcing has been central to the way US companies in sectors such as technology, finance, healthcare and retail operate. Sending work abroad allowed them to reduce costs and tap into large pools of specialised skills, with India emerging as the main destination.

The HIRE Act is part of a wider push in Washington to bring jobs back home. Moreno has positioned the bill as a way to stop companies from “chasing cheaper wages." White House trade adviser Peter Navarro, a key figure in Donald Trump’s protectionist agenda, has also repeatedly advocated penalties on offshoring, situating the bill within a broader policy trend in US politics.

How Dependent Are Indian IT Firms On US Clients?

India’s five biggest IT companies — Tata Consultancy Services, Infosys, Wipro, HCLTech and Tech Mahindra — derive between half and two-thirds of their revenues from North America, according to Firstpost. Overall, the Indian IT sector earns about 60 per cent of its revenues from the US.

These firms manage a wide range of services, from software development and cloud migration to analytics and business process outsourcing. Their clients include Fortune 500 companies such as Citigroup, JPMorgan Chase, Microsoft and Pfizer. Multinational corporations have also set up large Global Capability Centres in India, now numbering more than 1,600, which function as offshore hubs for software development, analytics and back-office functions.

Mint noted that India’s 10 largest IT services companies together had about 14,652 workers in the US on H-1B visas as of June 2025. This shows that Indian IT firms not only deliver from offshore but also maintain a significant onshore presence to service client needs.

Indian firms have been trying to diversify their client base by expanding into Asia, Japan, Australia, the Nordic region and West Asia. These moves remain at an early stage, with the US still dominating their revenue mix.

Could A 25% Levy Reshape Costs For American Companies?

If the bill goes through, US firms would face a tough choice: absorb the higher cost, renegotiate contracts with their Indian partners, or bring more work onshore. Analysts note that completely stopping outsourcing will be difficult, since the scale of talent available in India and other countries cannot be matched by the US workforce.

The immediate effect could be on pricing. Companies that rely heavily on outsourced services might press for rate cuts, while Indian firms may seek to pass on some of the cost to maintain their margins. Mint reported that four of the country’s big five IT firms, with the exception of Tata Consultancy Services, raised their operating margins in FY25, a cushion that could come under strain if outsourcing costs rise.

What Do Industry Voices Say?

Ganesh Natarajan, Chairman of GTT Data Solutions & 5FWorld, said in an interview to CNBC that he does not see the legislation going through “in its current format." He pointed out that Fortune 500 companies, many of which have large operations and Global Capability Centres in India, would resist it. He also argued that the proposed tax could become a “double whammy," since Indian firms already face taxes on work performed in the US.

Natarajan estimated that in a mature outsourcing contract, “almost 75 to 80 per cent of the volume of work is done offshore," though in value terms about 40 to 50 per cent is generated in the US because of price differentials. He added that near-term growth for Indian IT could be “tepid at best" due to automation and AI, but that companies are investing heavily in data engineering and remain optimistic for the medium term.

Nikhil Narendran, Partner at Trilegal, also told CNBC that while many similar bills have failed in the past, the present policy climate means the sector must remain cautious. He highlighted that the WTO moratorium on digital services taxation, due for review in 2026, will be important for how cross-border digital trade is treated.

How Are Global Trade Rules Relevant?

The World Trade Organization has a moratorium preventing members from imposing duties on digital services, last extended in early 2024 and scheduled for review in March 2026. In his CNBC interview, Narendran explained that this framework has shielded digital services from taxation so far, but could be reconsidered.

He recalled that India had once imposed an equalisation levy on digital services, often referred to as the “Google tax," before withdrawing it under US pressure. Any change in WTO rules would directly shape how proposals such as the HIRE Act interact with global trade agreements.

What Other Pressures Is Indian IT Already Facing?

The HIRE Act arrives at a moment when Indian IT firms are contending with multiple challenges. Clients in the US have been cutting discretionary spending amid economic uncertainty. Automation and artificial intelligence are replacing some traditional outsourcing tasks, reducing demand for certain services. Hiring has slowed as companies focus on efficiency.

What Happens Next In The US Legislative Process?

For the HIRE Act to become law, it must be introduced in the House of Representatives, cleared there, passed by the Senate, and signed by the President. Senator Moreno has said he intends to push it quickly. Mint reported that large US companies, which rely heavily on outsourced foreign workers, are expected to lobby through their state representatives to slow or block the proposal.

Where Things Stand

At this stage, the HIRE Act remains a proposal in the US Senate. It outlines a steep outsourcing tax and related measures that would directly affect both Indian IT companies and the American firms that work with them. Experts stress that while the bill may not advance in its current form, the fact that such measures are being introduced underscores the unpredictability of US policy in this space.

Indian IT companies, which already face pricing pressures and rapid technological shifts, are watching closely.

Karishma Jain

Karishma Jain, Chief Sub Editor at News18.com, writes and edits opinion pieces on a variety of subjects, including Indian politics and policy, culture and the arts, technology and social change. Follow her @kar...Read More

Karishma Jain, Chief Sub Editor at News18.com, writes and edits opinion pieces on a variety of subjects, including Indian politics and policy, culture and the arts, technology and social change. Follow her @kar...

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