SPOTLIGHT
US bill to tax outsourcing of services unlikely to hit Indian IT companies
This story was originally published at 21:45 IST on 9 September 2025
Register to read our real-time news.Informist, Tuesday, Sept. 9, 2025
By Anjana Therese Antony
MUMBAI – The US Bill that proposes to impose a hefty tax on outsourcing of services from foreign individuals or companies could have been a double whammy for India's information technology sector, but experts think otherwise. The Bill is unlikely to be passed in the US as it could hurt US-based companies heavily dependent on outsourced workforce and could also lead to retaliatory action from other countries, market participants said.
The experts also look at the Bill as "just a threat mechanism" to force companies to hire more US nationals and increase their investments in the country, and put pressure on US trading partners who have not signed any significantly favourable trade deals with the US.
All equity analysts Informist spoke to said they are refraining from estimating the likely impact on the sector. The proposal is still at an early stage, Dhananjay Sinha, co-head of institutional equities at Systematix group, said. "I think it will not be advisable to really start estimating (the likely impact of the proposed US Bill on Indian companies) before anything is put out or announced," Sinha said.
The Halting International Relocation of Employment, or HIRE, Bill, introduced by Ohio Senator Bernie Moreno in the US Senate on Saturday, proposes to impose 25% tax on a US company or a taxpayer for availing paid services from a foreign national or entity. It will also prohibit companies from deducting outsourcing expenses from their taxable income. If the Bill is passed, it would hurt Indian IT companies who are already struggling with muted earnings growth and lower discretionary spending. They would have to make some adjustments by onshoring staff or by upskilling resources, Sinha said.
For context, the size of India's IT sector is around $280 billion and most domestic players earn more than half of their revenue from US clients. India is among the preferred countries for highly-skilled IT workforce available at a much cheaper cost than US professionals, particularly for cloud computing and artificial intelligence-related projects. Though analysts could not give an actual number of Indian IT professionals deployed in the US, they said it would be more than 200,000.
The Bill itself is "not logical", an IT analyst at a top domestic bank-sponsored broking firm said. Many US-based banks, manufacturers, and IT players hire foreign talent and if this Bill is passed, their costs will increase significantly, the analyst said. Indian IT professionals are paid one-third of what their US counterparts could earn, say $70,000-$80,000 per annum instead of $250,000 for a US IT professional, the analyst said. The cost of a US professional will still be higher than an outsourced one if the tax proposal is passed.
US President Donald Trump going "back and forth" with his trade policies is another reason why experts think this tax proposal will fall through. Since the first tariff announcement on key US trading partners in early February, Trump has changed his mind on multiple occasions, pausing the tariffs, extending the pause, and then implementing them.
The lower unemployment rate in the US is also a reason why analysts expect the proposal to not go through. "...unemployment rate in the US is in low single digit. From where will you get people (to hire)," an IT analyst at another top bank-sponsored domestic brokerage house said. The US unemployment rate in August was at a four-year high of 4.3%, data released by the US Department of Labour last week showed. This is slightly higher than the 4.2% reported a month ago and in the year-ago period. However, this is lower than India's unemployment rate of 5.2% in July, down from 5.6% in June, as per the statistics ministry's data. End
US$1 = INR 88.10
Edited by Ashish Shirke
For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.
Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.
Informist Media Tel +91 (22) 6985-4000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2025. All rights reserved.
To read more please subscribe
Share this Story:
