Impact of H-1B Visa Fee Increase on Indian IT Sector: A Closer Look

The recent decision by the U.S. government to impose higher fees on H-1B visas has stirred discussions within the Indian IT industry. According to a report from Crisil Intelligence, the financial repercussions for major Indian IT firms may be less severe than initially anticipated, with profit margins expected to decline by only 0.20%. This article delves into the implications of this policy change, the evolving landscape of the H-1B visa program, and the broader context of the Indian IT sector.

Understanding the H-1B Visa Landscape

The H-1B visa program has long been a cornerstone for Indian IT companies seeking to deploy skilled workers in the United States. However, the landscape has shifted dramatically since 2018, when the denial rates for H-1B applications surged to 24%. This increase prompted many firms to reassess their reliance on this visa category. Crisil’s analysis indicates that the new fee structure, which includes a $100,000 charge for new H-1B visas, will only marginally affect the operating margins of these companies.

Historical Context of H-1B Visa Usage

Historically, the H-1B visa has been a vital tool for Indian IT firms like Tata Consultancy Services (TCS), Infosys, Wipro, and HCL Technologies. Between 2017 and 2025, the number of Indian employees on H-1B visas working for these companies nearly halved, dropping from 34,507 to 17,997. This decline reflects a broader trend of reduced dependency on H-1B visas, as firms increasingly turn to offshore delivery models and local hiring in the U.S.

Financial Implications for Indian IT Firms

Crisil’s report suggests that the operational margins of Indian IT companies, which stood at 22% in FY25, will only see a slight dip due to the new visa fees. The report estimates that these companies will likely pass on 30-70% of the increased costs to their clients. This strategy of cost-sharing is not new; it has been a common practice in the industry, especially in response to fluctuating operational costs.

Visa Costs and Employee Expenses

The report highlights that visa-related expenses constitute a mere 0.02-0.05% of the total employee cost, with H-1B visa fees ranging from $2,000 to $5,000 per individual. If the share of initial employment applications remains constant, the new fee structure could elevate visa costs to about 1% of total employee expenses. However, if the share of initial applications decreases, these costs may stabilize between 0.3-0.6%.

The Broader Economic Context

The Indian IT services industry is projected to generate between $143 billion and $145 billion in revenue for the current fiscal year, reflecting a modest growth of 2-4% compared to the previous year. However, forecasts for the next fiscal year suggest that growth may plateau or even decline. This stagnation could be exacerbated by the new visa fees, which may deter potential students from pursuing higher education in the U.S. and accelerate offshoring trends.

The Role of the U.S. Market

The U.S. market remains a critical revenue source for Indian IT firms, accounting for approximately 53% of their total earnings. In the last fiscal year, the industry exported $119 billion in services, underscoring its significance in the global outsourcing landscape. However, the recent visa fee hike could potentially diminish both the inflow of remittances and the share of U.S. contributions to India’s economy over the medium term.

Future Trends in the IT Sector

As the Indian IT sector navigates these changes, several trends are likely to emerge. The shift towards offshoring and local hiring is expected to accelerate, as companies seek to mitigate the impact of increased visa costs. Additionally, the declining share of initial employment applications for H-1B visas may lead firms to explore alternative staffing solutions, including partnerships with local talent pools.

Implications for Global Talent Mobility

The H-1B visa program has historically facilitated the movement of skilled labor across borders, contributing to the growth of the global tech ecosystem. However, the recent fee increases may deter international talent from considering the U.S. as a viable destination for employment. This shift could have long-term implications for innovation and competitiveness in the tech sector.

Conclusion

The U.S. government’s decision to raise H-1B visa fees presents a complex challenge for Indian IT firms. While the immediate financial impact appears limited, the broader implications for talent mobility, operational strategies, and market dynamics warrant careful consideration. As the industry adapts to these changes, it will be crucial for stakeholders to remain agile and responsive to the evolving landscape of global labor markets. The future of the Indian IT sector will depend on its ability to navigate these challenges while continuing to deliver value in an increasingly competitive environment.