HIRE Act 2025: A Potential Blow to India’s $100 Billion IT Export Sector

A new US bill, the Halting International Relocation of Employment (HIRE) Act 2025, has sent shockwaves through India’s IT sector. If passed, the law would impose a 25% excise tax on US company payments made to foreign entities for services that benefit US consumers. This could raise the effective cost of offshore IT and business process outsourcing, potentially reshaping the US-India technology corridor and disrupting India’s $100 billion IT export industry.

What the HIRE Act Proposes

At its core, the HIRE Act 2025 is designed to disincentivize outsourcing by making it more expensive and less tax-efficient for US companies to send work offshore.

Key Provisions

• 25% Excise Tax: Applies to payments such as fees, royalties, or service charges made by US entities to “foreign persons” where the benefit is for US consumers, even if indirectly.
• No Tax Deductions: These payments would not be deductible under federal income tax rules, further increasing the financial burden.
• Apportionment Clause: For mixed-market services, tax applies in proportion to the share of US consumers.
• Increased Compliance: Firms must submit detailed information returns, with certifications from corporate officers, and face enhanced penalties for violations.
• Domestic Workforce Fund: The collected tax revenue would fund apprenticeships and job retraining programs for US workers.

Timeline

• If enacted, these provisions would apply to all payments made after December 31, 2025.

Why It Matters for India

• The US is by far the largest customer base for Indian IT services and Global Capability Centres (GCCs). The act would:
• Drastically increase cost: A $100 payment could result in nearly $46 in additional taxes — $25 excise and $21 from lost tax deductions at a 21% US corporate rate.
• Threaten India’s IT dominance: Indian giants like TCS, Infosys, Wipro, HCLTech, and Tech Mahindra stand to lose competitiveness in their core US-facing markets.
• Impact a wide range of providers: The law’s scope extends to captive centres, contractors, and even freelancers, depending on consumer benefit.

Potential Impact If Enacted

1. Pricing and Profitability Pressure

Indian providers may be forced to renegotiate contracts, absorb higher costs, or pass them on to clients. This could reduce margins or shift delivery to onshore or near-shore hubs like Canada or Mexico.

2. Compliance and Contract Restructuring

Firms will need to track and document the end-consumer location, classify deliverables by geography, and possibly restructure contracts to minimize US exposure.

3. Reworking GCC Strategy

Global firms with Indian GCCs may divert internal charges, expand US-based operations, or even insource key functions domestically. Basic entity shuffling won’t suffice due to anti-avoidance provisions.

4. Automation Acceleration

To maintain margins, enterprises may adopt AI-powered solutions for Tier-1 support and back-office tasks, reducing dependence on offshore human resources.

5. Trade and Policy Tensions

The move could strain US-India trade ties, especially if Indian lobbying fails to secure carve-outs for R&D or small vendors. Political voices calling for reshoring may further amplify the issue.

Sector-Wise Impact Analysis

IT Services & Application Development

• High exposure due to large US portfolios. Companies face pricing pressure and volume risk.

BPM and Call Centers

• Directly in the crosshairs, as customer service work clearly benefits US consumers.

Product Engineering & R&D

• Impact hinges on whether outputs are consumer-facing. Treasury guidance will be key.

Freelancers and Startups

• Even small US startups may incur higher costs when hiring global freelancers, creating a disproportionate compliance burden.

Key Takeaways for Exam

• Name of Bill: HIRE Act 2025 (Halting International Relocation of Employment)
• Tax Impact: 25% excise + loss of tax deductibility = ~46% additional cost
• Effective Date: Applies to payments after December 31, 2025 (if enacted)
• Target: Foreign service providers benefiting US consumers