How the HIRE Act, a proposed 25% US outsourcing tax, threatens India’s IT

A new US Senate proposal, the Halting International Relocation of Employment (HIRE) Act, threatens to upend India’s USD 224 billion IT export market. With a proposed 25% excise tax on American firms’ outsourcing payments to foreign providers, Indian IT companies, their employees, and entire ecosystems built around Inidan IT hubs face great uncertainty. While analysts doubt the bill will pass in its current aggressive form, its chilling effect is already visible in boardrooms, stock prices, and household anxieties.

However, speaking on the sidelines of the Karnataka GCC report launch yesterday in Bengaluru, Priyank Kharge, Minister for Electronics, IT & BT, Rural Development and Panchayat Raj, Government of Karnataka, said while global policy shifts pose real concerns, Indian IT is resilient enough to weather such headwinds.

What is the HIRE Act?

Introduced in the US Senate by Bernie Moreno (R-Ohio) earlier this month, the HIRE Act seeks to impose a 25% excise tax on “outsourcing payments” made by US persons to foreign persons for services that benefit US consumers. It also denies tax deductions for those payments and make the excise itself non-deductible; at the current 21% corporate tax rate, losing this deduction significantly raises the after-tax cost of offshoring.

It also intends to create a domestic workforce fund using the proceeds and enforce strict reporting requirements and officer certifications under penalty of perjury, with enhanced penalties for non-compliance. The bill’s language is broad. “Outsourcing payments” would include not just fees to large IT service providers, but also contracts with global captives and even freelancers if the end benefit accrues to US consumers.

Why the US matters for Indian IT

The dependence is stark. Roughly 60–62% of India’s IT revenues are US-linked. The industry directly employs about 5.8 million people and supports millions more indirectly. As per available data, India’s overall trade surplus with the US stood at USD 45.7 billion in 2024, with IT services forming the backbone.

Markets have reacted. On 5 September 2025, Indian IT stocks fell as much as 2.3% intraday (Nifty IT index) amid the specualtion of HIRE Act related jitters. Investors fear that, even if diluted, the Act could reshape global delivery economics.

How much could costs rise: the equation

Accroding to analysts, a simplified illustration explains industry jitters. Today, a US firm paying USD 100 offshore enjoys a 21% tax shield, so the after-tax cost is USD 79. Under HIRE, it would pay USD 125 (the USD 100 fee plus 25% excise), with no deduction. The after-tax cost = USD 125. That is a jump of about 58%, depending on a firm’s effective tax rate. Analysts model the hit anywhere from 47–67% in practice. The result: India’s cost arbitrage advantage—the lifeblood of its IT-BPM sector—comes under direct threat.

The human and business fallout

If enacted, the Act could trigger pricing pressure as US clients ask Indian vendors to absorb some of the tax (as per news reports). Deal slowdowns and higher risk premiums could follow, especially in commoditised areas like application maintenance and call-centre services. Hiring freezes and layoffs may result, amplifying anxieties in a sector already unsettled by automation and generative AI disruption.

Strategic shifts for Indian IT

To de-risk, Indian IT firms may need to accelerate geographic diversification, pursuing growth in Asia, the Nordics, and the Middle East. They are also likely to double down on automation and AI to offset higher costs, even if that squeezes traditional service jobs. Repositioning towards consulting, cloud, cybersecurity, and platform-based services—where US demand is less price-sensitive—could become a survival strategy.

Through the lens of political and legislative context

Here is the caveat: many experts see the bill facing an uphill battle. US tech giants and trade associations are likely to oppose it, and lawmakers may resist raising costs for American businesses. Comparable anti-offshoring bills in past Congresses—like the “No Tax Breaks for Outsourcing Act” were introduced but failed to progress. So while the HIRE Act is disruptive in intent, it is still at a nascent stage, with its eventual form and prospects uncertain.

Implementation FAQ: what happens if the HIRE Act advances?

Does the HIRE Act automatically become law once introduced?

No. Like all US legislation, it must pass both chambers of Congress—the Senate and the House of Representatives—and then be signed by the President. Currently, it is only at the introduction stage in the Senate.

Which committees will review it?

Because the HIRE Act deals with taxation and trade, it is likely to be referred to the Senate Finance Committee. In the House, a companion bill would likely go to the Ways and Means Committee.

What is the timeline?

If taken up, bills typically move through committee hearings and mark-ups before reaching the floor for debate and a vote. This can take months, and many bills die in committee. Anti-outsourcing proposals in past Congresses have rarely advanced beyond this stage.

Is a simple majority enough?

Yes, in principle. But in the Senate most bills face the filibuster hurdle (Senate 60-vote rule). The term filibuster originally meant “pirate” in Spanish (filibustero). In politics it came to describe Senators “pirating” the process by talking endlessly to stall a vote. In practice, it means most legislation needs 60 votes to move forward.

When would the tax take effect?

The draft bill specifies that the 25% excise would apply to outsourcing payments made after 31 December 2025. That gives businesses and service providers some lead time, but also creates uncertainty for long-term contracts signed in 2024–25.

Who enforces it?

The US Treasury Department and IRS would be responsible for collecting the excise tax. The bill includes strict reporting requirements and officer certifications, raising compliance risk for US firms that offshore.

What happens if the bill stalls?

Even if it does not become law, its very introduction signals a political mood shift in Washington. Indian IT companies may face pricing pressure and contract renegotiations simply because US clients want to hedge against the risk of future restrictions.

Parting shot

India’s IT sector, the fulcrum being its export market, and the country’s biggest white-collar employer, is staring at its most direct challenge yet from US policy. Even if the HIRE Act is watered down, its very introduction signals a shifting political mood in Washington: one that could redefine the rules of global outsourcing in the years ahead.