What is the US HIRE Act? How will it impact the Indian IT sector? All you need to know

Indian IT service providers are already grappling with rising unemployment in the US, stabilising a dollar rate and looming tariffs on Indian IT services. Amid these headwinds, the new HIRE Bill, which was introduced by Senator Bernie Moreno in the US Senate, could possibly deal a major blow to the Indian IT sector.

What is the HIRE Bill?

The HIRE (Halting International Relocation of Employment) Bill seeks to discourage American companies from outsourcing work to foreign workers through tax measures. The bill proposes a 25% excise tax on the payments made by US companies to foreign persons, including companies and individuals, effectively increasing their tax burden. It will also ban any deduction the companies have availed on the expenses made for outsourcing the payments.

The money collected from these taxes will go into reskilling, apprenticeships, employment and workforce development of the US citizens.

Who will be affected?

The scope of this bill includes IT services, BPO, consulting, GCCs (global capacity centres) and individuals providing freelancing services. Indian IT services providers will be the primary target of this new act, as the US alone contributes 70% of the IT export revenue. Not just India, countries like Ireland, Israel, Poland and the Philippines will also get affected by the new bill.

When will the HIRE Bill get passed?

According to the media reports, if the bill is enacted before December 31, 2025, overseas payments made by US companies from January 1, 2026 will attract 25% tax.

How will the HIRE Act impact the Indian IT companies?

Industry experts as well organisations are cautious about the HIRE bill. They believe it is potentially disruptive and could impact margins for IT companies, by negating the cost arbitrage for Indian IT companies.

What lies ahead for the IT industry?

As of now, shares of IT companies are not seeing any adverse impact of the HIRE Bill, with the NIFTY IT index gaining over 4% in the last two trading sessions. However, industry experts are cautious and remain in a wait-and-watch mode.

On Wednesday, the NIFTY IT index closed 2.6% higher, seemingly ignoring the potentially negative news. IT stocks were among the top index gainers for the second consecutive day as potential call over Trump-Modi call on trade talks, potential rate cuts and the Infosys share buyback buoyed the investor sentiment for IT stocks.