Trump's H-1B Visa Policy: Can Budget 2025 shield its impact on Indian tax collections

India’s IT sector, a key driver of the nation’s economic growth, is heavily reliant on the ability to send skilled workers to the U.S. under the H-1B visa.
In this photo from Sept. 22, 2019, Prime Minister Narendra Modi and President Donald Trump shake hands after introductions during the "Howdi Modi" event in Houston.
In this photo from Sept. 22, 2019, Prime Minister Narendra Modi and President Donald Trump shake hands after introductions during the "Howdi Modi" event in Houston.FILE | AP
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As Donald Trump returns to the White House, the business world holds its breath - Trump 2.0's take on the H-1B visa program has the potential to reshape the economic landscape, both in the U.S. and India. And one of the most significant ripple effects of his visa policy may be felt on Indian tax collections.

Trump has long been a critic of the H-1B visa system, accusing tech giants of exploiting it to flood the U.S. market with cheaper foreign labour. The H-1B visa - which allows U.S. employers to hire highly skilled foreign workers, especially in the tech industry - has often been a lifeline for India’s tech professionals that make up the largest chunk of H-1B visa holders. So, what happens if Trump's proposed changes come into play once again?

Impact on Indian IT Sector Revenues

India’s IT sector, a key driver of the nation’s economic growth, is heavily reliant on the ability to send skilled workers to the U.S. under the H-1B visa. Tighter visa restrictions could drastically limit access, leading to fewer U.S.-based contracts and a dip in tech revenues. This could spell trouble for Indian IT companies, impacting their profitability and, consequently, tax collections in India. Given the sector’s significant contribution to the GDP and employment, any disruption could raise alarms.

Impact on Employment – Shift from US to India?

If the H-1B policy tightens, we could see a major shift in employment patterns. Indian IT firms may have to boost their local U.S. hiring to sustain operations. While this could protect their American ventures, it would also increase operational costs, reducing profits and taxable income in India. On the domestic front, Indian companies may ramp up hiring within India and explore local delivery models. This shift could offset some losses in U.S. revenue, but it would require stronger domestic job creation and an emphasis on skill-building to meet rising demand.

Impact on Personal Income Tax collection and Remittances

Indian professionals working in the U.S. also contribute significantly to India’s personal income tax collection and foreign exchange inflow. A reduction in H-1B visa allocations could dampen these inflows, which will have a dual impact — reducing India’s foreign exchange reserves and curtailing domestic spending capacity. A shrinking pool of Indian expatriates in the U.S. would also likely result in lower income tax filings linked to overseas earnings, putting additional pressure on India’s tax base.

Navigating the Road Ahead: Remedies and Opportunities

Target New Markets: In light of a more restrictive U.S. visa regime, Indian firms may look to diversify and tap into alternative emerging markets — from the Middle East to the Asia-Pacific region. While this could reduce dependency on the U.S. market and spread income streams, it also introduces new complexities including potential tax obligations across multiple jurisdictions. Navigating these challenges would require robust compliance mechanisms but could open up growth opportunities in emerging international markets.

 Promote India-Based Delivery Models: As the H-1B visa becomes harder to obtain, Indian tech firms may shift to India-based delivery models. By capitalizing on India’s strong IT infrastructure, skilled workforce, and the growing emphasis on cloud services and remote work solutions, these companies could continue serving international clients without relying on U.S. operations. This approach could reduce the adverse effects of tighter visa restrictions, boost domestic IT activity, and, importantly, increase India’s tax revenues from local operations.

 Tax Relief and Strategic Support: To help cushion the blow, the Indian government may need to introduce targeted tax policies that help the sector weather the storm. For instance, there could be increased incentives for companies expanding their domestic operations or diversifying into new international markets. Additionally, tax reliefs for IT firms investing in cutting-edge technology and upskilling their workforce would help maintain the industry’s global competitiveness and resilience.

 While Trump’s policies on H1B visas may pose immediate challenges, they could also serve as a wake-up call for India to reduce its reliance on the U.S. market. The restrictive U.S. policies could act as a catalyst for India to invest more in its domestic talent and initiatives like “Start Up India”, “Digital India” and “Skill India” could receive a renewed push. While challenges are inevitable, Budget 2025 should focus on this and present opportunities for innovation, growth, and reform in India’s tax landscape.

--The author, Amit Baid, is head of tax at BTG Advaya. The views are personal.

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