USA HIRE Act: Indian IT Sector Anxious as America May Levy Additional Tax on Companies Outsourcing Employment

The U.S. Senate has made a proposal known as the Halting International Relocation of Employment (HIRE) Act, putting India’s IT sector on alert by proposing a 25% excise tax on “outsourcing payments”. The HIRE Act seeks to ban tax deductions enjoyed by companies and route those proceeds to a Domestic Workforce Fund that shall be used to train American workers to fit the positions that were earlier enjoyed by outsourced professionals.

The bill was introduced by Republican Senator Bernie Moreno and is explicitly framed to discourage U.S. companies from hiring foreign labour instead of Americans. The senator’s press release makes clear the levy is aimed at payments to foreign persons whose work benefits U.S. consumers and that the proposal would collect funds for apprenticeships and workforce programs.

From an Indian perspective, the HIRE Act’s mechanics are simple on paper and disruptive in practice. It defines “outsourcing payments” broadly to include fees, premiums, royalties and service charges paid by U.S. companies to foreign entities for labour or services that ultimately serve U.S. consumers.

The proposal also removes the ordinary business-tax deduction for such payments, which doubles the effective penalty for offshore contracting. However, lawyers and tax experts warn that ambiguity in definitions and enforcement will cause significant issues when implemented.

What’s at stake for India is large. India’s information technology sector is currently valued in the high hundreds of billions of dollars and accounts for a material slice of GDP and exports; it employs several million people across services, BPO and global capability centres. Major U.S. firms are among the largest clients for Indian IT services.

Data extracted from the National Association of Software and Services Companies (NASSCOM) - a non-profit trade association and the premier body for India's IT and Business Process Outsourcing (BPO) industry shows India’s technology sector generated $268.8 billion in revenue in FY2024 and is projected to bring in about -$282.6 billion for FY2025 and expected to cross $300 billion in FY2026, with roughly 5.67 million people employed.

The potential economic hit is severe even in draft form. Analysts say combined federal, state and local taxation, plus the loss of deductibles for companies, could drive the effective cost of outsourcing well above the now-marked 25%.

The immediate commercial response is already palpable: clients are delaying or making amendments to their contracts and adding clauses to brace for legislative risk. If the Bill advances and is passed, immediate legal and lobbying responses from U.S. companies situated in India could be expected.

This development arrives against a backdrop of strained India-U.S. trade relations after steep U.S. tariff measures introduced in August elevated broader trade tensions and already weakened investor sentiment between the two nations.

Whether the HIRE Act would become law in its present form is uncertain; for India’s IT sector, the immediate imperative is to model client exposure, reprice bids with US companies and to push clients and trade bodies for clarifying rules and exemptions.

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