IT Inc worries as US may slap tariffs on software exports

India’s information technology sector is rattled by indications that the US government could consider extending tariffs to software exports, a prospect that would deal a blow to the industry in its largest market. IT firms are already reeling under the impact of global business uncertainty and automation driven by artificial intelligence (AI), said industry experts.

The domestic $283-billion technology services outsourcing industry, with players including Tata Consultancy Services, Infosys, HCLTech and Wipro, currently relies on more than 60% of its revenue share from the US, while the majority of the workforce is based in India.

If the US government imposes tariffs on services exports, it could imply double taxation as Indian software service providers pay significant taxes in the US. Further tightening of the visa regime could also increase costs from a surge in hiring in the US or nearby locations.

Till now, though, the US government has not officially disclosed any such plan or contemplation. Fears were triggered after the US President’s senior counsellor for trade and manufacturing Peter Navarro this week reposted a social media commentary on X that all outsourcing and foreign remote workers be charged with tariffs.


Delivery costs may be hit

“Countries must pay for the privilege of providing services remotely to the US the same way as goods. Apply across industries, levelled as necessary per country,” said a post by US conservative commentator Jack Posobiec.

If implemented, it will impact every technology service recipient because all now use India and similar locations aggressively. The rhetoric around tariffs on India’s outsourcing industry is more political theatre than practical policy, said Phil Fersht, CEO and chief analyst at HFS group. However, any move to penalise outsourcing would create short-term uncertainty, raise delivery costs and stress margins at a time when demand is already soft.

“Imposing duties on digital labour flows is far more complex than taxing goods crossing borders. The US depends heavily on India’s IT and engineering talent, whether onsite through H-1B visas or offshore through remote delivery, to keep its own technology economy competitive,” Fersht said. “In addition, several tech billionaire leaders exert significant influence over the Trump administration, and many of them are strongly pro-India because their global businesses depend heavily on Indian engineering talent, delivery capability and market access.”

Yugal Joshi, partner at US-based technology consultancy and analyst firm Everest Group, said, “These companies pay significant taxes in the US and therefore, the tariff will be double taxation… It will further harm growth of India-based service providers and even GCCs, if they are tariffed too.”

GCCs are the offshore centres opened in India by multinationals, several US-based, to insource technology services at a cheaper cost.

The tariff move can push affected firms to hire more people in the US to deliver services, thereby reducing their profitability, Joshi added.

Posobiec’s social media post also stated, “Tariff the foreign remote workers. All outsourcing should be tariffed.”

At present, technology services are delivered at cheaper costs to clients from low-cost countries like India where engineering talent and outsourcing expertise has been developed at scale.

Pareekh Jain, founder and CEO of IT industry insights platform EIIRTrend, said that the US is the centre of the Indian IT industry, which is already facing challenges with AI, macroeconomic situation and visa issues.

“Any tax or even talk of tax on the Indian IT sector will be challenging to say the least. But the balance of the trade situation of services is complex. So, the tax on Indian IT doesn’t look like an immediate possibility, as then India can also put a digital tax on US companies such as Google, Meta and others,” Jain said.

However, according to Jain, the US government can stir the pot by discussing the taxation of IT services and GCCs, creating uncertainty and thereby attempting to put more pressure on India regarding the trade deal.

The US government under president Donald Trump, as well as his predecessor Joe Biden, has tightened the H-1B visa regime, significantly impacting Indian tech workers who form the bulk of the beneficiaries under that visa category.

The ongoing tariff discourse has further amplified Trump’s ‘America-first’ narrative in which Indian tech workers, both onshore (via H-1B visas) and offshore (via remote services), are presented as a threat to American jobs.

Everest Group’s Joshi said that the US government cannot be expected to behave logically and that this does not come as a surprise. “The earlier ‘Keep Call Centers in America’ initiative also indicated in this direction… If the clients are willing to pay higher prices, Indian providers can deliver services from the US itself. But the US doesn't have the needed talent for such service delivery,” he said.

Moreover, enterprises in the US do not really have many alternatives.

Over the past several quarters, Indian software service providers have been diversifying the market share to other markets to reduce their reliance on the US, given the subdued demand from American firms amid the slowing US economy and impact of global geopolitics. However, given the overwhelming reliance on the US, it will take years to see any material change.

Analysts believe Indian outsourcing firms can explore local vendors and other countries where tariffs may be lower.

Joshi said pricing of services could go up as no provider can afford that at this time given the ongoing revenue expansion and AI disruption challenges.

Whether this is feasible is uncertain, but all options must be explored at this juncture, said experts.