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www.newsindiatimes.com – that’s all you need to know India’s IT Sector Nervous As US Proposes Outsourcing Tax I ndia’s massive IT sector faces a lengthy period of un- certainty with customers delaying or re-negotiating contracts while the U.S. debates a proposed 25% tax on American firms using foreign outsourcing services, analysts and lawyers said. The sector is likely to be on the receiving end of a bill which, though unlikely to pass in its nascent form, will initiate a gradual shift in how big-name firms in the world’s largest outsourcing market buy IT services, they said. Still, with U.S. firms having to pay the tax, those heav- ily reliant on overseas IT services are likely to push back, setting the stage for extensive lobbying and legal battles, analysts and lawyers said. India’s $283 billion information technology sector has thrived for more than three decades exporting software services, with prominent clients including Apple, Ameri- can Express, Cisco, Citigroup, FedEx and Home Depot. It has grown to make up over 7% of GDP. However, it has also drawn criticism in customer countries over job loss to lower-cost workers in India. Last week, U.S. Republican Senator Bernie Moreno introduced the HIRE Act which proposes taxing compa- nies that hire foreign workers over Americans, with the tax revenue used for U.S. workforce development. The bill also seeks to bar firms from claiming outsourcing payments as tax-deductible expenses. The bill could not have come at a worse time for India’s IT sector, which is struggling with weak revenue growth in its mainstay U.S. market as clients defer non- essential tech spending amid inflationary pressure and tariff uncertainty. “The HIRE Act proposes sweeping changes that could alter the economics of outsourcing and significantly increase the tax liability associated with international service contracts,” EY India’s compliance head Jignesh Thakkar said. In some cases, combined federal, state and local taxes could push the levy on outsourced payments as high as 60%, Thakkar said. “While its partisan proposal may seem initially attrac- tive, it’s ultimately an artificial cost which makes organ- isations less competitive and profitable globally,” said Arun Prabhu, partner at Cyril Amarchand Mangaldas. Even so, the idea is gaining traction. This month, White House trade adviser Peter Navarro reposted a call from far-right activist Jack Posobiec for tariffs on services, not just goods. “When political noise turns into regulatory risk, clients quickly insert contingencies, reopen pricing and demand delivery flexibility,” said HFS Research Presi- dent Saurabh Gupta. “Clients will simply take longer to sign, longer to renew, and longer to commit transformation dollars,” Gupta said. Industry body Nasscom and IT firms Tata Consul- tancy Services, Infosys, HCLTech, Tech Mahindra, Wipro and LTIMindtree did not respond to requests for com- ment on implications of the bill. BACKLASH BECKONS Companies are likely to lobby hard against the pro- posed bill and challenge it legally if passed, legal experts and industry watchers said. “A bill like this would probably face a lot of backlash from U.S. companies that rely heavily on outsourcing, who would likely bring litigation to challenge various aspects of the bill, if it were ever to be passed into law,” said Alcorn Immigration Law CEO Sophie Alcorn. Sweeping restrictions are unlikely given the practical hurdles in enforcing the bill’s provisions, experts said. “More likely is a diluted version, with narrower provi- sions or delayed enforcement,” said HFS Research CEO Phil Fersht. The bill could also affect U.S. firms’ global capabil- ity centres (GCCs), which have evolved from low-cost offshore back offices to high-value innovation hubs that support operations, finance, research and development. “It will be hard to pull back from existing work, but new set-ups and expansion may get impacted,” said Everest Group partner Yugal Joshi. The proposed tax will impact the cost arbitrage ad- vantage that is among the deciding factors when estab- lishing a GCC, said Bharath Reddy, a partner at CAM. “However, the lack of availability of appropriate hu- man capital in the U.S. will continue as a problem, and which can be addressed in the near future only through outsourcing,” he said. -Reuters News India Times (September 13, 2025 - September 19, 2025) September 19, 2025 6 US India PHOTO:REUTERS/Vivek Prakash/File Photo PHOTO:REUTERS/Kevin Mohatt/File Photo Workers are pictured beneath clocks displaying time zones in various parts of the world at an outsourcing centre in Bangalore February 29, 2012. U.S. Senator Bernie Moreno (R-OH) speaks during a Senate Banking, Housing, and Urban Affairs Committee confirmation hearing in Washington, D.C., U.S., April 10, 2025. By Haripriya Suresh and Urvi Dugar US Will Sort Out Trade With India, Commerce Secretary Lutnick Says U .S. Commerce Secretary Howard Lutnick said on Thursday he believes the United States will sort out a trade deal with India as soon as that country stops buying Rus- sian oil. Asked on CNBC what trade issue he was most focused on, Lutnick mentioned India and said: “Well, we’re going to sort out India,” once it stops buying Russian oil. Lutnick also said “we have a big deal coming with Taiwan” and he said a trade agreement would probably get done with Switzerland. On South Korea, he said: “We made a deal, but let’s see if they come through with the paperwork.” He would not comment on whether an im- migration raid on a Hyundai plant in Georgia had delayed finalization of that deal. -Reuters PHOTO: REUTERS/Leah Millis/File Photo U.S. Secretary of Commerce Howard Lutnick testifies before a House Appropriations Committee hearing on U.S. President Donald Trump’s budget request for the Department of Commerce, on Capitol Hill in Washington, D.C., U.S., June 5, 2025. PHOTO: Jabin Botsford/TheWashington Post President Donald Trump shakes hands with Modi at the White House in February.