India Proposes Outsourcing Tax Amid Economic Shifts

The U.S. Senate on September 10, 2025, introduced the Halting International Relocation of Employment (HIRE) Act, a bill that proposes a sweeping 25% excise tax on outsourcing payments made by U.S. companies to foreign service providers. The legislation, spearheaded by Senator Bernie Moreno, aims to discourage offshoring by making it significantly more expensive for American firms to contract services abroad, particularly in the technology and business process outsourcing sectors. The bill also eliminates the ability for U.S. companies to deduct these payments as business expenses, further raising the effective cost of outsourcing.

Immediate Impact on India’s IT Sector

India, which accounts for nearly 60% of the global IT outsourcing market to the U.S., stands to be the most affected by the proposed legislation. Major Indian IT firms such as TCS, Infosys, Wipro, and HCLTech derive more than half of their revenues from U.S. clients. The HIRE Act’s dual measures—a 25% excise tax and the loss of tax deductibility—could increase the total cost of outsourcing by up to 46% for U.S. companies. This has already sent shockwaves through Indian financial markets, with IT indices falling by about 1% following the bill’s announcement. Industry analysts warn that the bill, if enacted, could force Indian IT companies to rethink their U.S.-centric business models and accelerate diversification into other global markets.

U.S. Policy Shifts and Global Repercussions

The HIRE Act is part of a broader protectionist agenda in the U.S., with President Trump and other policymakers calling for American tech companies to prioritize domestic hiring over foreign outsourcing. The bill’s introduction follows a series of executive orders and policy proposals aimed at tightening immigration and reducing reliance on overseas talent, particularly from India. The proposed tax would apply to a wide range of payments—including service fees, royalties, and consulting charges—where the benefit accrues to U.S. consumers. Companies would be required to apportion payments for contracts serving both U.S. and non-U.S. markets, with the tax applying only to the U.S. portion.

Industry and Investor Response

The Indian IT industry, valued at over $250 billion, is bracing for significant disruption. The bill’s broad definition of “outsourcing payments” means that not only third-party vendors but also company-owned captive centers and freelancers could be affected. U.S. clients may delay contract renewals or seek alternative markets, while Indian firms may face squeezed profit margins and slower growth. Startups and smaller firms, especially those in AI and emerging technologies, are particularly vulnerable, as the U.S. remains their primary market for both clients and investment. Some industry leaders have called for urgent diplomatic engagement to mitigate the bill’s impact, while others are exploring expansion into Europe, Asia, and the Middle East.

The HIRE Act is not yet law, and its passage remains uncertain amid ongoing debate in Washington. However, its introduction marks a pivotal moment in the global outsourcing landscape, with far-reaching implications for India’s technology sector and the broader U.S.–India economic relationship.