Bangalore: In a setback to the Indian information technology (IT) industry, the US Senate has passed new legislation to increase the fees that companies have to pay to get H-1B and L visas for skilled workers. Indian software firms use these visas to ship engineers to the US for onsite work.

The money raised from higher visa fees is to fund an extra $600 million (Rs2,760 crore) spending to strengthen security along the US border with Mexico, and comes a few months before US President Barack Obama visits India to strengthen bilateral ties.

Infosys Technologies Ltd, India’s second largest software exporter, said the new law is discriminatory.

“It is unfortunate that this tax is being levied on a discriminatory basis when the need is to open markets to make companies more competitive in the global marketplace," said Infosys in a statement. The firm said it is hiring locals for the past few quarters in the US and plans to recruit 1,000 people.

Naveen Kumar Saini / Mint

Their proposal has to get approved in the US Congress on 10 August and later ratified by Obama before it becomes law.

The H-1B visa is issued to hire skilled foreign workers temporarily if local US talent is not found. The L category visa is for intra-company transfers.

Som Mittal, president of industry lobby Nasscom, said that the Indian IT industry was likely to be hit by around $250 million in additional fees though it gets about only 12% of the total H-1B visas issued.

“It is unfortunate that this Bill has come just months before President Obama’s visit to India and when the two nations are having an ongoing strategic dialogue. It is clearly unhelpful as it seeks to target Indian IT industry," he said.

India earned nearly two-thirds of its software and backoffice exports of $49.7 billion in fiscal 2010 from the US. This year, the industry expects to grow 15-18% on increased business flow from customers.

At present, it costs about $3,320 for H-1B and L visas. The Bill recommends increasing visa fees in both categories by another $2,000.

Indian IT firms have been the biggest beneficiaries of these visa categories and the US sets an annual cap on the number of visas used. In the current year, the US has set a cap of 65,000 visas under H-1B category. Figures for number of L category visas availed are not available as they are for intra-company transfers and there is no cap on them. Both these categories of visas have been controversial, with critics saying that they are being used even where there is no labour shortage in the US and that they artificially depress wages for American workers.

The Bill specifies that fees would be hiked primarily for those employers who have more than 50% of their employees on the H-1B or L category visa. Though the number of H-1B visas issued to Indian firms have been decreasing, under the L category when the nature of work changes or an employee extends stay or is transferred onto a different project, fees would have to be automatically paid.

“Indian IT firms funding border security in the a strange phenomenon. It is little draconian," said Ganesh Natarajan, chief executive of Zensar Technologies Ltd, a midsize IT services firm, which got 14 H-1B visas last year.

L. Ravichandran, chief operating officer of Tech Mahindra Ltd, said the impact on his company would be minimal as nearly 85% of the work is done offshore.

Nasscom said every year the Indian IT industry contributes about $1billion for social security payments in the US for even employees posted temporarily there. Since an individual needs to be in the US for at least 10 years before one can enjoy benefits of social security, the money spent does not benefit the employees or the Indian IT industry.

Interestingly, many countries in Europe such as Belgium and Germany offer social security benefits, said Krishnakumar Natarajan, chief executive of MindTree Ltd.

“At the one hand, US talks about promoting global trade and here they bring in an indirect form of protectionism. As business becomes more competitive, it is not (a) level playing field any more," he added.

One analyst said the increase in visa fees would add around $1,000 per year to the cost of an employee, or 12 hours of chargeable onsite wages for these technology workers. “The increased cost is not that much if you consider the fact that companies have to take Indians for the project as there are very few Americans available with the specific skill set," said Viral Thakker, executive director (sourcing advisory services) at audit and consulting firm KPMG.

Surabhi Agarwal in New Delhi contributed to this story.