H-1B visa fee hike a major negative, but an even bigger threat looms over Indian IT companies

The H-1B visa fee hike is said to be a major blow to the Indian IT companies, but a potentially bigger threat is looming on the Indian IT sector, which could significantly erode Indian IT firms' revenue and profitability.

The Halting International Relocation of Employment (HIRE) Act, tabled in September 2025 by Ohio Republican Senator Bernie Moreno, aims to discourage US companies from outsourcing jobs to foreign workers. The bill seeks to impose a 25 per cent tax on payments made to foreign firms for services offered to American consumers.

HIRE Act a bigger risk than H-1B visa fee hike

India’s $280 billion IT services industry is staring at a risk of severe disruption as the HIRE Act will ensure tax on outsourced services.

Major Indian IT firms, including TCS, Infosys, Wipro, HCL Tech, and Tech Mahindra, derive about 50–60 per cent of their revenue from the US.

According to Kotak Securities, India’s IT services industry derives over 60 per cent of its export revenues from the US, translating to approximately $150 billion out of the $250 billion sector size.

The brokerage firm said the proposed 25 per cent tax on outsourcing payments directly targets this revenue stream.

"If enacted, it could inflate client costs by up to 46 per cent when the disallowance of deductions is factored in. This jeopardises deal renewals and new bookings, especially in cost-sensitive verticals like banking, financial services, and insurance (BFSI) and retail, which dominate US contracts," said Kotak.

"The HIRE Act could compress operating margins by 500 to 1,000 basis points for Indian IT firms, according to Merisis PMS estimates. Mid-tier firms such as LTIMindtree and Mphasis, which operate at 12–15 per cent EBIT margins, are particularly vulnerable. In contrast, large caps like Infosys, with 20–22 per cent margins, may absorb shocks better but still face erosion," Kotak said.

Experts fear that the 25 per cent tax on outsourcing will kill high-paying jobs and force IT companies to offer services at a lower price to the US. This would result in low revenue and profit for the IT sector.

A hit on the IT sector's revenue could significantly affect India's GDP, as the tech sector added $283 billion to GDP in 2024—7.3 per cent of total GDP. According to the NASSCOM President, the technology sector will contribute around $1 trillion to the country's GDP by 2030. Notably, India aims to become a $7 trillion economy by 2030.

Can the HIRE Act become a reality?

Experts see the possibility of the HIRE Act becoming a reality as remote. They see the bill's introduction as a pressure tactic against India.

"The proposed HIRE Act would undoubtedly be a severe blow to the Indian IT sector. However, it’s too early to conclude that it will actually be implemented. In my view, the current H-1B visa fee hike appears to be more of a tactical bargaining tool ahead of our minister’s visit to Washington," said G. Chokkalingam, founder and head of research at Equinomics Research Private Limited.

Chokkalingam pointed out that if the US administration truly intended to take a hard line, it could have imposed the hike across the board, rather than restricting it to new applications, or even introduced a recurring fee instead of a one-time charge.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, also believes the bill is highly unlikely to pass — at best, there’s only a remote chance. However, if it does go through, it would deal a serious blow to the Indian IT sector.

Meanwhile, many Republicans are gradually distancing themselves from Trump’s policies, believing they could harm America’s long-term growth prospects and ultimately damage the US more than its trading partners.

Vijayakumar highlighted that Trump’s tariff policies are already fuelling inflation. Headline figures of 2.7–2.9 per cent understate the problem because services inflation remains low while goods inflation is rising sharply as higher tariffs are gradually passed through to consumers.

"In the coming months, as the economy weakens substantially, inflationary pressures may ease — but until then, the inflation backdrop will remain extremely challenging," said Vijayakumar.

Chokkalingam said we must wait and watch for now. But if trade negotiations fail, we should be prepared for the possibility of a tax on IT services, effectively extending the tariff war to the services sector.

"In that scenario, large IT companies could face prolonged underperformance. Therefore, I continue to maintain an underperform rating on large IT services companies," said Chokkalingam.

"While the HIRE bill could pass with a moderate levy—say 5–10 per cent rather than an aggressive 25 per cent—the risk of harsher measures rises if trade talks collapse. This makes the outcome of bilateral trade discussions absolutely critical for both the economy and the markets," said Chokkalingam.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.