Crisil Intelligence: Higher H1B visa fee will lower margins of IT cos a bare 10-20 bps

Companies likely to share the incremental cost with clients at a 30-70% pass-through

The US decision to impose a $100,000 fee on new H1-B visas for foreign workers will snip just 10-20 basis points from the operating margins of Indian information technology (IT) services companies next fiscal.

These companies, which had operating margins of ~22% last fiscal, are likely to share the incremental cost with clients. The pass-through is estimated at 30-70%.

The reliance of IT companies on H-1B visas has been reducing over the past few years. The trend began in 2018 when the denial rate increased to 24%, leading firms to expand offshore delivery, open nearshore centres and hire locally in the US, even though the denial rate eased to 3% in 2024.

According to the US Citizenship and Immigration Services (USCIS), between 2017 and 2025, the number of Indian employees on H-1B visas working for TCS, Infosys, Wipro and HCL Technologies almost halved from 34,507 to 17,997, marking a negative compound annual growth rate of 9%.

For the current fiscal, there will be no impact as the H1-B requirements will have been fulfilled by now.

The visa fee directive, effective from September 21, 2025, excludes existing H1B visa holders and renewals.

India's IT services industry is expected to reel in $143-145 billion this fiscal, marking a revenue growth of 2-4% over last fiscal. Next fiscal, growth is expected to be only marginal or flat.

According to the USCIS, between October 2023 and September 2024, total H1-B visas issued for four IT companies, which account for ~50% of the industry revenue, stood at 34,507. Of this, 35% was for initial employment and 65% for continuing employment. The share of initial employment is expected to decline over the medium term.

Employee cost accounted for 55-57% of sales of India's IT companies last fiscal, while visa expenses totted up to 0.02%-0.05% of the total employee cost, with H1-B visa fees ranging between $2,000-5,000 per person.

About 35% of the approved H-1B applications from October 2023 to September 2024 were for initial employment. If this share remains constant next fiscal, the new fee structure could crank up visa cost to ~1.0% of total employee cost. If the share is reduced, visa-related costs are expected to remain between 0.3-0.6% of the total employee cost.

Tier-1 IT companies such as TCS, Infosys, Wipro and HCL generate 96% of their revenue from the international markets, with the US alone accounting for ~53%.

Last fiscal, the industry exported $119 billion in services, reflecting its scale in global outsourcing.

India remained the top recipient of remittances at $118.7 billion in fiscal 2024, about 23% of that coming from the US. The visa fee hike is likely to reduce both the inflows and the share of US over the medium term.

The visa fee hike is expected to also accelerate offshoring and deter students considering higher studies in the US.

Source : Equity Bulls

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CRISIL INE007A01025 H1BVisaFeeHike Impact ITCompanies LowerMargins