US honeymoon over for Indian IT giants? How Trump tariff threats, visa curbs, RESTRICT Act, HIRE Act spell doom for software industry

For nearly three decades, Indian software outsourcing helped grow its IT industry, sent tens of thousands of Indians on high‑skilled visas who went on to build new businesses and startups both in India and abroad, and made software engineering a “secure job” option for higher studies. But politico‑economic winds threaten to end this honeymoon, with the spectre of tariffs, visa and immigration policy curbs likely to disrupt their longstanding growth trajectory in the American market.

How US policies may hurt India’s IT sector

The negative trends include proposed “outsourcing taxes” under HIRE Act, tightening of visa regulations, and national security reviews under legislation such as the RESTRICT Act.

The US federal government—both in the executive branch and in Congress—is considering steps that could disrupt the traditional Indian IT business model that heavily relied on skilled visa workers, especially those on H‑1B visas.

Taxation on outsourcing may become a reality in the US: The HIRE Act

The proposed HIRE Act (Halting International Relocation of Employment Act), introduced by Senator Bernie Moreno of Ohio, aims to impose a 25 per cent excise tax on payments US companies make to foreign persons for services that benefit US consumers.

The bill also prohibits tax deductions for such outsourcing payments and would channel the revenue into a so-called ‘Domestic Workforce Fund’ to finance retraining and apprenticeships. Industry experts believe that the cost burden under the HIRE Act could approach 46 per cent before state taxes.

Talk of US visa rule tightening is making Indian IT sector jittery

The US proposals include raising H‑1B visa fees by up to five times, enforcing one mandatory local hire for each H‑1B worker, and limiting H‑1B usage if firms use these visa holders for more than 15 per cent of their US workforce. These proposals are not yet law but are under serious discussion.

Indian IT firms are already reducing their dependence on H‑1B visas amid increasing complexity, cost, and regulatory uncertainty. As of June 2025, the 10 largest Indian IT services firms had about 14,652 workers in the US on H‑1B visas.

How big is the US market for the Indian IT sector?

India’s IT sector is now estimated at about $283 billion in total size. More than 60 per cent of the revenues of major Indian IT services companies comes from the US, which remains their largest market by far. Top five Indian IT firms—TCS, Infosys, HCLTech, Wipro and Tech Mahindra—generate about 50 to 65 per cent of their revenues from North America.

The US outsourcing tax (if passed in its current form) and visa tightening could erode their margins. Experts say the cost arbitrage advantage Indian IT firms have enjoyed is under threat. Many clients are reportedly delaying contracts, renegotiating pricing, or demanding changes in delivery models because of the perceived risk, according to reports

RESTRICT Act, Russia-linked sanctions, and other headwinds

Although visa policy is one major front, there are also national security and trade policy headwinds. Several Indian firms have been under scrutiny for allegedly supplying dual‑use or sensitive technology related to Russia. The RESTRICT Act empowers the US Commerce Secretary to investigate and potentially block tech‑related transactions involving entities from “foreign adversaries” if those transactions pose a risk to national security. While Indian firms are not the direct targets of this in many public reports, the law could indirectly affect them, especially if they are linked to supply chains involving sensitive ICT (Information and Communications Technology).

Indian IT firms are at a critical inflection point in US market

The combination of this proposed outsourcing taxes, probable visa tightening, national security laws, and geopolitical tensions mean that the days of relatively easy growth in the US market may be coming to an end for Indian IT companies.

They will have to diversify away from heavy dependence on US clients, re‑negotiate business models with greater risk sharing. The honeymoon is probably over, or at least on borrowed time.