The US and India formalized an interim trade framework in early February 2026, slashing US reciprocal tariffs on Indian goods from a peak of 50% down to 18%. The deal, formally announced by President Trump on February 2 and confirmed by a White House joint statement on February 6, was the culmination of nearly 10 months of escalating duties that had pushed the bilateral trade relationship to its most strained point in decades. For most Indian goods exporters, it was a genuine relief. For India's IT services sector, the tariff debate was never really the story.
What the Data Shows
The reciprocal tariff applies to physical goods classified under the US Harmonized Tariff Schedule. Software and IT services exports are classified as services, not goods, which means they fall entirely outside the tariff's scope. TCS, Infosys, Wipro, HCL Tech, and other major IT exporters are not directly subject to the tariff. Their US revenues, their delivery models, and their hiring pipelines are untouched by the rate that's been driving headlines.
The scale of that exempted activity is significant. NASSCOM projects India's IT-BPM exports will reach $224 billion in the current fiscal year, growing at 4.6% year-on-year. The US accounts for as much as 70% of India's total IT export revenue, according to market estimates. That's a revenue corridor of well over $150 billion sitting completely outside the tariff framework, not as a policy carve-out or exemption granted under negotiation, but because services aren't goods. They never were.
India's software services export market is valued at $165 billion in 2026 and growing at a compound annual rate of 4.5%, with projections pointing to $206 billion by 2031. The tier-I players dominate by scale, but mid-tier IT companies have been outperforming in recent quarters, and Global Capability Centers (GCCs) are rapidly expanding their share of AI, cloud, and engineering R&D roles. Wisemonk's India IT Services Analyst Report 2026 tracks this GCC expansion in detail, including the shift of higher-complexity engineering work into Indian cities beyond the traditional Bangalore and Hyderabad hubs.
The broader deal adds another layer of stability. India committed to purchasing more than $500 billion in US goods over five years, including energy, ICT products, aircraft, and agricultural goods. That purchasing commitment gives Washington concrete headline wins, while preserving India's position as the world's largest services export hub.
What This Means
For companies building knowledge-work teams in India, the goods-versus-services distinction isn't a legal technicality. It's the structural reason why cross-border hiring arrangements, software delivery contracts, and IT service agreements operate in an entirely different regulatory lane from physical goods trade. The tariff conversation simply doesn't apply.
This matters because boardroom hesitation over the past year has been real. As US tariffs on Indian imports climbed to 50% through the second half of 2025, some companies started asking whether any India exposure now carried new political or commercial risk. The honest answer, for knowledge work and services-based models, is no. A software engineer's output doesn't go through customs. An Employer of Record in India arrangement, where a cross-border employer engages Indian talent through a compliant local entity, involves no goods, no freight, and no tariff exposure of any kind.
Wisemonk's India Investment Intelligence 2026 report puts the talent fundamentals in clear terms: India produces more than 800,000 engineering graduates annually, roughly six times the output of the United States. That supply, combined with well-established delivery infrastructure and cost structures significantly below US or UK equivalents, is independent of any trade deal outcome. The deal's resolution removes bilateral uncertainty. The structural case for building in India was already in place.
Both governments also committed to expanding bilateral technology trade significantly, with particular emphasis on GPUs, data center equipment, and joint technology cooperation in AI and semiconductors. That's a policy posture that actively encourages deeper US-India technology integration, and it reinforces rather than complicates the case for cross-border tech hiring through structures like EOR or staff augmentation. For companies still weighing whether to offshore to India, this bilateral trajectory removes one of the few remaining macro objections.
What to Watch Next
The interim framework is not a finalized Bilateral Trade Agreement. The original fact sheet was revised after India pushed back on specific language around pulses and digital services taxes, and what was billed as a "deal" is technically a joint statement outlining a framework for further negotiation. Key issues, including digital trade rules, agricultural access, and rules of origin, remain unresolved. Companies with goods-intensive supply chains involving India should keep watching USTR announcements closely.
The full tariff reduction from 25% to 18% was expected to take effect in March, subject to the successful conclusion of the interim agreement, with further adjustments tied to the broader BTA outcome. So the 18% rate is directionally confirmed but not yet fully locked in for all product categories.
One separate development worth monitoring: the European Union and India finalized a deal in January 2026 that will eliminate tariffs on 96.6% of EU imports into India, with the EU expecting to double its annual exports once the deal is codified. As major trade blocs close bilateral arrangements with India, the country's attractiveness as an investment destination strengthens across the board.
The tariff noise around India has been significant since April 2025, but for IT services and cross-border knowledge work, it was always beside the point. Services don't move through ports. They don't get classified under the Harmonized Tariff Schedule. What the February 2026 framework actually accomplishes, for companies building or scaling teams in India, is the removal of a geopolitical overhang that was generating uncertainty without ever creating actual tariff exposure. The structural case for India hiring is intact. The political environment is now stabilizing to match it.