Indian IT firms gear up to deal with US govt’s outsourcing tax
To weather the Trump’s tariff storm, IT firms likely to go for nearshoring etc to diversify revenue
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Bengaluru: Indian IT services providers are quietly preparing for diversification of revenue basket beyond the USA coupled with nearshoring opportunities for weathering a storm that may come from taxing services by the US administration.
According to the sources in the know, many IT firms have started preparing for a scenario where the US administration imposes tax on outsourcing of technology work to other countries. Proposed in the form of HOPE Act, 2025, Trump administration is actively pursuing an idea of imposing taxes on IT outsourcing work to foreign companies or individuals. If it becomes the law, then Indian IT firms will be badly hit as it will no longer be profitable for US technology firms to outsource work to offshore locations like India.
Against this backdrop, IT firms are now actively pursuing options to shield their balance sheets.
“For time being, if this act becomes a law, Indian IT firms can circumvent through executing projects from different locations (which are beyond India). Sometimes, services are very difficult to trace unlike goods. Billing can be done from different locations. So, there are many grey areas in the services space,” Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting told the Bizz Buzz.
Industry experts also said that nearshoring is another option which Indian IT firms will tap if restriction is imposed on Indian technology companies. In nearshoring, IT companies execute a project from a nearby country to the client location. For instance, Canada and Mexico are used as nearshores for serving the US clients.
Additionally, dependence of subcontractors in the US is going to increase if tax on outsourcing is imposed.
“In the last few quarters, Indian IT companies have reduced their dependence on subcontractors but it will increase if outsourcing is restricted by the US authorities. While large IT firms have done sound level of localisations, mid-tier IT firms’ dependency on subcontractors is expected to rise,” said an industry official.
As the global technology industry reels under a slowdown in demand owing to Trump tariffs and AI wave, Indian IT firms are likely to post tepid quarterly results in the second quarter of FY26.
“Though there is a robust pipeline of projects, it is not translating into revenues. There are a lot of project ramp downs and request for discounts. Therefore, Indian IT players are negotiating with customers to reward them with long-term projects, which will be executed at a deferred time,” Jain said.
