Threat without substance

1. Another section of IT sector however opined that despite the immediate market scare, the tariff threat may not materialize soon as U.S. companies rely heavily on Indian IT firms. They noted that ending contracts abruptly isn’t feasible but if companies anticipate no future contracts, they’ll start cutting jobs.
2. United States is reportedly exploring the imposition of tariffs on Indian IT services, a move that could significantly impact India’s $283 billion technology outsourcing industry which derives over 60% of its revenue from the U.S.
3. A new bill introduced in the U.S. Senate, known as the Halting International Relocation of Employment (HIRE) Act proposes a 25% tax on payments made by U.S. companies to Indian vendors for services benefiting American consumers.
4. ech-legal experts cautioned that “Rhetoric” was driving decision-making, highlighting the uncertainty surrounding the bill’s passage. They pointed out that the World Trade Organization’s moratorium on taxing digital services, set for review in March 2026, could further complicate the landscape.

United States is reportedly exploring the imposition of tariffs on Indian IT services, a move that could significantly impact India’s $283 billion technology outsourcing industry, which derives over 60% of its revenue from the U.S. market. Additionally, a new bill introduced in the U.S. Senate, known as the Halting International Relocation of Employment (HIRE) Act, proposes a 25% tax on payments made by U.S. companies to Indian vendors for services benefiting American consumers. This development has sparked apprehension in India’s IT sector, already navigating global economic uncertainties and the rise of AI-driven automation. The Hiring Incentives to Restore Employment (HIRE) Act, introduced by Ohio Senator Bernie Moreno, aims to discourage outsourcing by levying a 25% excise tax on payments to foreign entities, including Indian IT firms like TCS, Infosys, Wipro, HCLTech, and Tech Mahindra.

The bill also prohibits tax deductions for these payments, with proceeds directed to a Domestic Workforce Fund for apprenticeships and retraining. If enacted, the legislation could increase the cost of offshore IT and back-office services by nearly 46%, factoring in the excise tax and additional corporate taxes, potentially forcing U.S. companies to renegotiate contracts or shift to onshore delivery. The potential tariffs and the HIRE Act come amid broader U.S. trade actions against India, including a 50% tariff on Indian goods effective August 27, 2025, prompted by India’s continued purchase of Russian oil. While IT services are currently exempt from these goods tariffs, the sector faces indirect pressures, such as tightened H-1B visa regulations and increased taxation on remittances, which could further complicate talent mobility and raise costs.

A senior official at a tech-legal firm cautioned that while similar proposals have failed in the past, the current political climate warrants vigilance. He noted that “Rhetoric” was driving decision-making, highlighting the uncertainty surrounding the bill’s passage. He pointed out that the World Trade Organization’s moratorium on taxing digital services, set for review in March 2026, could further complicate the landscape. Countries like India have pushed to tax digital services locally, a stance opposed by the U.S, which could lead to reciprocal measures like the HIRE Act. Another entrepreneur in the AI sector expressed skepticism about the bill’s likelihood of passing, citing resistance from American corporations with significant investments in India. He said that every major Fortune 500 company and IT CEOs rely on Indian talent through global capability centers and outsourcing. He also noted that the proposed tax could result in double taxation, as Indian firms already pay taxes in the U.S., making the bill a “double whammy” for American companies outsourcing to India. He estimated that 75-80% of outsourcing work is performed offshore, contributing to cost efficiencies that benefit both Indian providers and U.S. clients.

A consulting editor at a business journal however opined that despite the immediate market scare, the tariff threat may not materialize soon as U.S. companies rely heavily on Indian IT firms for long-term contracts. He noted that switching systems or ending contracts abruptly isn’t feasible but if companies anticipate no future contracts, they’ll start cutting jobs, which could devastate the sector. Recent layoffs in the IT industry, often attributed to AI-driven automation add another layer of concern though it is being stressed that the current discussion focuses solely on tariff risks.

Despite these challenges, entrepreneurs remained optimistic about the Indian IT sector’s resilience, particularly in adapting to AI and automation. They note that in the medium term, Indian companies are ahead of the curve in mastering AI as service providers. They also predict a temporary slowdown over the next two to three quarters but a strong recovery thereafter. However, social media posts from figures like Laura Loomer and endorsements from Trump advisors like Peter Navarro have heightened concerns, signaling rising protectionist sentiment. Industry experts urge caution but hope the HIRE Act remains a peripheral proposal. As U.S.-India trade talks continue, the outcome of these proposals could reshape the technology corridor between the two nations, with significant implications for India’s IT industry and its economic ties with the U.S.