What is US HIRE legislation and what it means for Indian tech sector

The US HIRE Act plans a 25 per cent tax on outsourcing payments by American firms, aiming to boost local jobs; the move could raise costs for companies relying on Indian IT and service providers

The United States (US) has put forward a new legislation called the Halting International Relocation of Employment (HIRE) Act. The Bill, introduced by Ohio Senator Bernie Moreno, seeks to curb outsourcing by US companies. If passed, it will impose a 25 per cent excise tax on payments made to foreign workers for services that ultimately benefit American consumers.

 

The proposal also aims to ban tax deductions for such payments and direct the money collected into a "Domestic Workforce Fund" to support apprenticeships and worker retraining in the US.

 

What does the HIRE Act propose?

 

The HIRE Act’s goal is to encourage job creation within the US by discouraging companies from sending work abroad. Key measures include:

 

• 25 per cent outsourcing tax: Companies must pay this tax on money sent to foreign workers for services consumed in the US

• Ban on deductions: Businesses cannot claim these outsourcing payments as tax-deductible expenses

• Domestic Workforce Fund: Revenue from the tax will finance training programs and apprenticeships for American workers   

 

What happens next in the process?

 

Since the Bill introduces a new tax, it must also be presented in the House of Representatives before becoming law. After that, it would need Senate approval and the President’s signature.

 

Senator Moreno told reporters, “We will know which Republicans are on board and which ones aren’t and will make the Democrats take a vote.” He added that he plans to bring the Bill to the floor next week.

 

What is the global position on taxing services?

 

At present, the World Trade Organisation (WTO) has a long-standing agreement that prevents member nations from imposing duties on digital services. This moratorium has been renewed several times, most recently in early 2024, and is up for review again in March 2026, BusinessLine reported.

 

From India’s side, as part of trade understandings with the US, it had earlier withdrawn the equalisation levy on digital services.   

 

How will Indian IT companies be affected?

 

If enacted, the Bill will make outsourcing more expensive for American businesses. This will directly affect Indian IT service providers, business process outsourcing firms, contractors, freelancers, and even captive centres.

 

India’s IT majors — TCS, Infosys, Wipro, HCLTech, and Tech Mahindra — earn more than half of their revenues from US clients, according to The Economic Times. Similarly, global capability centres (GCCs) of Fortune 500 firms in finance, retail, healthcare, and technology rely heavily on Indian talent.

 

A 25 per cent surcharge, combined with the loss of deductibility, would significantly increase the overall cost of offshoring for US firms.

 

Can US companies avoid outsourcing altogether?

 

Analysts believe that completely stopping outsourcing will be difficult. They point out that the scale of talent available in India and other countries cannot be matched by the US workforce. BusinessLine reported that US firms may find it hard to manage large-scale operations solely with domestic workers.