The US HIRE Bill threatens $100 billion Indian IT exports by imposing a 25% outsourcing tax. Learn its impact on India’s IT sector and global tech industry.
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NEW DELHI: The United States is turning its attention from Indian goods exports to services, with a new legislative proposal that could dramatically affect India’s booming IT sector. The “Halting International Relocation of Employment Act” (HIRE Act), introduced in the Senate by Senator Bernie Moreno, proposes a 25% tax on certain payments US taxpayers make to foreign service providers.
What the HIRE Act Aims to Do
Senator Moreno argues that while college graduates in America struggle to find jobs, many corporations have been outsourcing high-paying jobs abroad. He said:
“If companies want to hire foreign workers instead of Americans, my bill will hit them where it hurts: their pocketbooks.”
The bill is designed to protect the working-class Americans by making outsourcing costly and encouraging domestic employment.
This move, if enacted, could make Indian IT services exports to the US significantly more expensive. Considering that the US accounts for over 50% of India’s software services exports, which totaled around $225 billion in 2024–25, the implications are substantial.
Even before the HIRE Act, voices calling for tariffs on outsourced labor were gaining traction. Far-right commentator Jack Posobiec suggested:
“Tariff the foreign remote workers. All outsourcing should be tariffed. Countries must pay for the privilege of providing services remotely to the US, the same way as goods.”
This sentiment reflects a broader push in the US to bring jobs back home.
Key Provisions of the HIRE Act
The HIRE Act introduces the concept of “outsourcing payments”, which includes any premium, fee, royalty, or service charge paid to a foreign person for services benefiting US consumers. Key highlights include:
- 25% Tax: Imposed on payments for services benefiting US consumers. For services partly directed to international markets, only the US portion is taxed.
- Foreign Person Definition: Anyone who is not a US person; excludes corporations or partnerships organized under US possession law.
- Severe Penalties: Non-compliance penalties could skyrocket from 0.5% to 50% per month, without the usual aggregate cap.
- Non-Deductibility: The tax will not be deductible from a US taxpayer’s income.
Why the HIRE Act Matters for US-India Tech
The US is the largest market for Indian IT services and global capability centers. A 25% excise tax plus denial of deductions could raise the effective cost of offshore services to nearly 46%, significantly impacting US buyers. The bill’s scope likely covers all foreign service providers—including large vendors, captive centers, affiliates, contractors, and freelancers—if their work benefits US consumers, even indirectly. Anti-avoidance rules and Treasury guidance will determine the full reach.
Changes if the HIRE Act Becomes Law
- Price and Margin Impact: US buyers may renegotiate rates, shift work onshore/nearshore, or rebalance non-US work, potentially compressing Indian providers’ margins.
- Contract & Compliance Overhead: Companies will need detailed scoping, time-tracking, and documentation to define “consumer benefit” and justify apportionment.
- GCC Strategy Shifts: Multinationals may reroute charges, expand US hubs, or insource critical roles; anti-avoidance rules prevent simple entity reshuffles.
- AI and Automation: Enterprises may accelerate automation of support, QA, and back-office processes to offset higher labor costs.
- Political & Trade Friction: Indian IT exports could face lobbying for exemptions or clarifications, amid broader US political pressure to curb offshoring.
Sector-by-Sector Impact (US-India Perspective)
- IT Services & ADM: Largest exposure; major Indian firms and mid-tier vendors face pricing and volume risks on US-facing work.
- BPM / Call Centers: Highly affected, as “consumer-directed” services like customer support fall squarely under the bill.
- Product Engineering / R&D: Impact depends on whether outputs benefit US consumers; Treasury guidance will be crucial.
- Startups / Freelancers: Overseas payments for US-focused apps and services may become costlier, increasing compliance burdens for SMEs.
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What Companies Should Do
- Map Exposure: Identify foreign-service payments tied to US consumers and model cost impact of the 25% excise plus lost deductibility.
- Contract Hygiene: Include market-based scoping, apportionment methods, and change-in-law clauses.
- Operating Models: Explore US/nearshore pods, hybrid delivery models, and automation to maintain service levels.
- Policy Engagement: Work with industry bodies in the US and India to seek clarity or targeted relief.
Domestic Workforce Fund
The HIRE Act also proposes the creation of a Domestic Workforce Fund, financed through the outsourcing tax and related penalties. Funds would be used exclusively for:
- Workforce development and retraining programs by the Department of Labor
- Apprenticeship programs
- State grants aimed at communities affected by high job displacement
The bill is set to take effect for payments made after December 31, 2025.
The HIRE Act is designed to favor domestic hiring. If enacted, US buyers would face higher costs for offshore work, and Indian IT and BPM providers may need a strategic reset. The ultimate impact depends on Congress, Treasury guidance, and enforcement of anti-avoidance rules.
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