The US-India trade picture changed twice in two weeks. On February 6, 2026, President Trump signed an executive order removing the punitive 25% tariff his administration had imposed on Indian goods over Russia oil purchases, cutting the effective rate on Indian imports from 50% to 25% as part of a framework interim trade deal. Two weeks later, the Supreme Court rendered the entire legal basis for that framework moot.
What the Data Shows
The February 6 executive order was significant on its own terms. Trump cited India's commitment to stop directly or indirectly importing Russian Federation oil, its pledge to purchase US energy products, and a framework for expanded defense cooperation over the next ten years. The joint statement accompanying the order outlined a further reduction, bringing the effective tariff on Indian goods down toward 18% under what was framed as a bilateral interim agreement.
That 18% figure didn't survive the month. On February 20, 2026, the Supreme Court issued its decision in Learning Resources, Inc. v. Trump, holding that IEEPA does not give the president authority to impose tariffs. The ruling invalidated the full architecture of IEEPA-based trade action, including the reciprocal tariff framework that had targeted India specifically. IEEPA-based tariffs were no longer collected on goods entered for consumption on or after February 24, 2026. Within hours of the decision, the administration pivoted. President Trump issued a proclamation under Section 122 of the Trade Act of 1974, imposing a 10% temporary import surcharge on all countries, with Trump announcing the following day that he would increase the rate to 15%, the statutory maximum. Section 122 measures are limited to 150 days and will expire on July 24, 2026, unless extended by Congress.
The practical result: India no longer faces a country-specific tariff regime. It faces the same 10 to 15% global surcharge as virtually every other US trading partner. That's a meaningfully different situation from the 50% peak reached last August, but it's also far less stable than the bilateral deal framework suggested. India's trade negotiators rescheduled their Washington visit, saying it would be scheduled "after each side has had the time to evaluate the latest developments and their implications."
Throughout all of this, one category of Indian exports has remained structurally outside the line of fire: IT and knowledge services. Software exports, business process outsourcing, and professional services are classified as services trade, not goods trade. The goods tariff regime, whether IEEPA-based or Section 122-based, doesn't touch them. TCS, Infosys, Wipro, HCL Tech, and their peers export no physical merchandise to US buyers. They export code, analysis, and skilled labor, none of which crosses a customs border.
The scale of what moves across that services channel helps explain why the exemption matters so much. India's technology industry is projected to reach $315.4 billion in revenue in FY2026, crossing the $300 billion milestone for the first time, with tech exports estimated to exceed $246 billion, a 5.6% increase over FY2025. According to the Wisemonk India IT Services Analyst Report 2026, the US accounts for 55% of those exports by value, making India's services relationship with American buyers one of the largest bilateral services flows anywhere in the world. The total tech employee base stands at 5.80 million, with the industry adding 126,000 net new employees in FY2025 alone.
What This Means
The goods tariff story is, at this point, a story about instability more than it is about any fixed rate. The 18% figure from the interim deal is in limbo while India's trade negotiators regroup and the Section 122 authority faces its own legal challenges. Twenty-four states filed a lawsuit in March 2026 challenging the Section 122 tariffs, arguing the conditions required for the statute to apply don't currently exist. The Section 122 clock also runs out in July regardless, unless Congress votes to extend it, which is far from certain.
For Indian manufacturers, exporters, and companies with US goods supply chains, that uncertainty is real and hard to plan around. Textiles, gems, pharmaceuticals, electronics assembly, the sectors that bore the brunt of 2025's tariff escalation, now face a regime that could shift again under legal or legislative pressure.
For companies that hire Indian knowledge workers or source IT services from India, the story is different. The services exemption isn't a technicality or a loophole subject to political renegotiation. It reflects a structural fact about how international trade law distinguishes goods from services. The World Trade Organization's General Agreement on Trade in Services operates entirely separately from the goods regime. US executive tariff authority, whether IEEPA or Section 122, reaches physical imports. It doesn't govern cross-border service delivery. That distinction is durable in a way that bilateral deal terms aren't.
That stability has real weight when you look at what Indian teams represent at scale. India hosts over 1,700 Global Capability Centers employing 1.9 million professionals, with GCCs recording a compound annual growth rate of 7% between FY2020 and FY2025. These aren't vendor relationships in the traditional sense. They are engineering and product functions embedded inside global company structures, building the same products their London or New York counterparts build, at 40 to 60% lower cost. According to Wisemonk's India Investment Intelligence 2026 report, over 90% of these centers now operate as multi-functional hubs spanning technology, operations, and product engineering. The UK, meanwhile, is the second-largest importer of Indian IT services after the US, accounting for approximately 17% of services exports by value, a relationship that has compounded through every tariff cycle without interruption.
An organization sourcing software development, data engineering, finance operations, or legal support from Indian teams is operating in a part of the trade relationship that has stayed remarkably stable through 18 months of tariff volatility. The goods picture has lurched from 25% to 50% to 25% to struck-down to Section 122, all within a year. The services picture hasn't moved.
What to Watch Next
The immediate question is whether the Section 122 surcharge survives its 150-day window. Congressional appetite for extending it looks limited, with several Republican members already voting against tariff extension measures in February. If Section 122 lapses in July without a congressional vote, the administration would need to move to Section 301 or Section 232 authorities to maintain any elevated tariff on Indian goods, both of which involve more procedural groundwork.
The interim US-India trade deal also remains unfinished. India's trade team postponed its Washington visit after the IEEPA ruling, and the negotiating context has shifted considerably. Watch for whether a new framework emerges that is grounded in authorities the Supreme Court hasn't ruled on, and whether that framework makes sector-specific carve-outs or applies a uniform goods rate.
On the services side, watch for any movement toward taxing digital services exports or imposing withholding requirements on cross-border payments to foreign service providers. Several proposals of this kind have circulated in Congress over the past two years. None has passed, but they represent the one realistic legislative path through which IT services exports could face US-side cost pressure. For FY2027, AI investments are expected to move from experimentation to industrial-scale deployment, with strong contract bookings and a revival in discretionary spending leading major Indian IT firms to signal improved demand visibility. A legislative shift targeting services payments would cut against that momentum sharply, which is precisely why it faces such headwinds in Congress.
The tariff environment around Indian goods will keep shifting as legal challenges to Section 122 work through the courts. But the core logic separating goods from services trade isn't going anywhere. Companies making sourcing and hiring decisions based on that distinction are standing on more solid ground than the headline tariff numbers might suggest. When the dust settles on whatever trade framework emerges post-July, India's $246 billion services export engine will still be running, largely unaffected by whichever tariff instrument replaced the last one.