The proposed Halting International Relocation of Employment (HIRE) Act in the United States has triggered widespread discussion in the global technology and outsourcing industry. The bill seeks to impose a 25% tax on payments made to foreign entities — including Indian IT companies — for providing technology services to US clients.
However, industry analysts believe the proposed law is unlikely to pass, and even if approved, US companies could bear the brunt of the impact, not Indian software exporters.
1. What Is the HIRE Act?
The HIRE Act aims to:
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Make outsourcing costlier for US companies.
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Reduce reliance on foreign labour.
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Protect local employment by encouraging US-based hiring.
Introduced by Senator Bernie Moreno, the legislation proposes a 25% tax on payments made to foreign IT service providers. This would directly affect large Indian IT players, given their significant reliance on the US market.
2. Indian IT’s Heavy Dependence on the US
Indian IT companies earn nearly 60% of their total revenues from the US market. The top five players — TCS, Infosys, Wipro, HCL Technologies, and Tech Mahindra — have built a strong presence servicing American multinationals for decades.
| Company | Operating Margin (FY24) |
|---|---|
| TCS | 24.3% |
| Infosys | 21.1% |
| HCL Technologies | 18.3% |
| Wipro | 17.1% |
| Tech Mahindra | 9.7% |
These healthy margins are expected to remain stable in the short term, as analysts believe Indian IT firms can pass on most additional costs to their US clients.
3. Why the Impact on Indian IT Will Be Limited
a) Strong Pricing Power
Analysts from JM Financial note that India’s IT sector enjoys a near-monopoly on global outsourcing scale:
“No other country has the scale and skill that India brings in IT services. Unlike goods manufacturing, replacing software engineers at this scale in a short span is unfathomable.”
If costs increase due to the 25% tax, Indian IT firms could pass on a significant portion to American clients, minimizing pressure on their margins.
b) Declining H-1B Visa Dependence
Indian IT firms are reducing reliance on US-based workers:
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As of June 2025, the top 10 software service providers hold ~14,000 H-1B visas.
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A decade ago, they held three times as many.
This shift means more work is handled offshore from India, lowering the operational impact of stricter US visa rules.
c) Rising Offshore Model Adoption
Indian IT firms increasingly deploy teams based in India and Brazil rather than at client sites in the US.
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As billing is often linked to the number of employees deployed, the 25% tax would not directly affect all project structures.
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With fewer employees physically in the US, the overall exposure is lower.
4. Why US Companies Could Be Hit Harder
Despite the proposed tax targeting foreign providers, the bigger challenge lies with American companies:
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Lack of Skilled Tech Talent
The US faces a massive talent shortage in advanced technologies like cloud computing, AI, and cybersecurity. Replacing Indian IT resources locally is nearly impossible in the short term. -
Higher Project Costs
If Indian IT service providers charge $100 per employee today, post-tax billing may jump to $125.
US clients would need to either absorb the full increase or negotiate cost-sharing with Indian vendors — potentially paying $80 to the provider while shouldering part of the tax burden. -
Competitive Pressure
American companies competing globally could face margin erosion if operational costs rise, impacting profitability and investment flexibility.
5. Broader Industry Challenges
The HIRE Act arrives at a time when Indian IT firms are already navigating:
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Uncertain global demand amid economic slowdown.
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AI-driven disruption impacting traditional IT revenues.
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Increased competition from mid-sized IT service providers.
Adding a 25% outsourcing tax could worsen cost pressures for US clients, but Indian firms’ established dominance and offshore strategy provide a natural buffer.
6. The Road Ahead
Before becoming law, the bill must:
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Pass the US House of Representatives.
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Clear the US Senate.
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Receive the President’s assent.
Given current political priorities and America’s tech skills gap, experts believe the bill faces significant hurdles.
Bottom Line:
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In the short term, Indian IT profitability remains largely protected.
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US companies, however, may face higher costs and pricing pressure if the bill moves forward.
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The global outsourcing model, with India at its core, is unlikely to change overnight.
Conclusion
While the HIRE Act represents a potential disruptor for the IT outsourcing industry, the dependency of US businesses on India’s IT capabilities cannot be overstated.
Indian IT giants are well-positioned to navigate the challenges, but pricing negotiations with US clients could intensify in the coming months.
Tags: #HIREAct #IndianIT #USMarkets #Outsourcing #ITServices #GlobalEconomy #Taxation #TCS #Infosys #Wipro #HCL #TechMahindra #cagupta #thelegaldost
