US HIRE Act Threatens Indian IT: Will a 25% Outsourcing Tax Change the Game?

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5 Key Takeaways

• The US Senate is considering the HIRE Act, which proposes a 25% tax on certain payments to foreign service providers, including Indian IT firms.
• If enacted, the bill would make Indian IT services exports to the US more expensive, impacting an industry worth $225 billion in 2024-25.
• The tax targets payments for services benefiting US consumers and applies only to the portion directed to the US market.
• Penalties for failing to pay the tax would increase sharply, and the tax would not be deductible from US taxpayers' income.
• Revenue from the tax would fund a new Domestic Workforce Fund for US workforce development and retraining programs.

Indian IT Companies on Edge as US Proposes New Outsourcing Tax
The Indian IT industry is facing a new challenge from across the globe. The United States is considering a new law, called the "HIRE Act" (Halting International Relocation of Employment Act), which could make it much more expensive for American companies to hire Indian tech workers and use Indian IT services.
What’s the HIRE Act All About?
The HIRE Act, recently introduced in the US Senate by Senator Bernie Moreno, proposes a hefty 25% tax on certain payments that US businesses make to foreign companies or workers for services that benefit American consumers. In simple terms, if a US company pays an Indian IT firm to handle its software, customer support, or other tech needs, that payment could be taxed an extra 25%.
Senator Moreno says the goal is to protect American jobs. He argues that too many good jobs have been sent overseas, leaving American graduates struggling to find work. “If companies want to hire foreign workers instead of Americans, my bill will hit them where it hurts: their pocketbooks,” he said.
Why Does This Matter to India?
The US is the biggest customer for India’s IT services, accounting for more than half of India’s software exports—worth about $225 billion in 2024-25. If the HIRE Act becomes law, Indian IT services could become much more expensive for US companies. This could mean fewer contracts for Indian firms, and possibly job losses or slower growth in India’s massive tech sector.
How Would the Tax Work?
The proposed tax would apply to any payment made by a US business to a foreign person or company for services that benefit US consumers. If the service benefits both US and non-US customers, only the US portion would be taxed. The bill also includes tough penalties for companies that don’t pay the tax—up to 50% of the unpaid amount per month, a huge jump from the current penalty.
Where Would the Money Go?
The money collected from this new tax would go into a special “Domestic Workforce Fund.” This fund would be used to help train and retrain American workers, support apprenticeship programs, and help communities hit hard by job losses.
When Could This Happen?
If the HIRE Act passes, the new tax would apply to payments made after December 31, 2025. Indian IT companies and the government are watching closely, as this could have a big impact on one of India’s most important industries.
Stay tuned for more updates as this story develops!

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