Trump tariffs on India’s software exports? Why IT sector is worried - double taxation, visa tightening may deal a blow

India’s IT sector is worried about the possible imposition of tariffs on software exports to the US by the Donald Trump administration. This comes at a time when the IT sector is already experiencing challenges due to worldwide economic uncertainties and the increasing adoption of AI-based automation, according to industry specialists.

The US government's potential consideration of extending tariffs to software exports has created significant concern within India's information technology industry, as this could severely impact their operations in their main market.

Trump tariff fears: Why is Indian IT sector worried?

The implementation of tariffs on services exports by the US administration could result in dual taxation, as Indian software companies already contribute substantial tax payments in the United States, according to an ET report.

Additional restrictions on visa regulations might lead to increased operational costs due to necessary local recruitment in the US or neighbouring regions.

The Indian technology services outsourcing sector, valued at $283 billion and including companies such as Tata Consultancy Services, Infosys, HCLTech and Wipro, derives over 60% of its earnings from the United States, whilst maintaining its primary workforce in India.

However, the US administration has not yet formally announced or indicated any such intentions. Concerns arose after Peter Navarro, the US President's senior advisor for trade, shared a social media post on X suggesting the application of tariffs on all outsourcing and foreign remote workers.

A US conservative commentator Jack Posobiec posted: "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."

Such implementation would affect all technology service recipients who utilise services from India and similar nations.

Will Donald Trump impose tariffs on IT?

Phil Fersht, CEO and chief analyst at HFS group, suggests that discussions about tariffs on India's outsourcing sector represent more political messaging than actual policy intentions.

Nevertheless, any outsourcing penalties would generate immediate uncertainty, increase operational costs and affect profit margins during an already challenging demand period, the ET report said.

"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, was quoted as saying: "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."