BENGALURU, INDIA – India’s US$283B IT sector is facing uncertainty as the U.S. considers a new tax on outsourcing. A bill introduced by Republican Senator Bernie Morena, called the Halting International Relocation of Employment (HIRE) Act of 2025, proposes a 25% tax on U.S. companies that hire outsourcing providers instead of Americans. It also aims to block these companies from claiming outsourcing costs as tax-deductible expenses.
If passed, this bill could significantly change how U.S. companies, such as Apple, Citigroup, FedEx, and Home Depot, which rely on Indian IT firms, engage with outsourcing providers, says Jignesh Thakkar, EY India’s compliance head. He added that payments on the outsourcing tax could reach as high as 60% when combined with state and local levies.
Saurabh Gupta, president of HFS Research, also weighed in, stating, “When political noise turns into regulatory risk, clients quickly insert contingencies, reopen pricing, and demand delivery flexibility.” The soaring costs alone will eventually result in clients delaying contracts, renegotiating deals, or scaling back spending.
What This Means for India and the U.S. Companies
The proposal comes at a tough time for India’s IT sector, which is already grappling with weak growth and cautious U.S. spending due to inflation and global economic uncertainty. Analysts say the bill is unlikely to pass at this stage, given the enforcement challenges and potential backlash from U.S. companies that depend heavily on outsourcing. A watered-down version or delayed rollout is seen as more realistic, says Phil Fersht, CEO of HFS Research.
Still, the very discussion of such a tax is causing hesitation, as the bill could affect future expansions of global capability centers (GCCs) in India. As everyone knows, these GCCs have more than helped U.S. companies in running their operations, finance, and research and development. Adding the outsourcing tax to the equation will impact the cost savings advantage of GCCs.
The silver lining is that the U.S. has an ongoing problem with talent shortages. This lack of human capital can only be filled in through outsourcing.
Of course, with the bill looming ahead, India’s IT sector should brace itself to hold on to its biggest market client.
