US doubles fees for H1-B, L1 visas: What it means for IT companies

The US Congress on Thursday doubled a special fee on the H-1B and L-1 visas raising it to $4,000 on certain categories of H-1B visas and $4,500 on L-1 visas.

Fundamnetal picks by Sharekhan: TCS, Infosys among top picsk in IT sector
Among the IT companies that have announced their results, HCL Tech is leading in growth terms followed by Tata Consultancy Services (TCS), Wipro, Infosys and Tech Mahindra.

The US Congress on Thursday doubled a special fee on the H-1B and L-1 visas raising it to $4,000 on certain categories of H-1B visas and $4,500 on L-1 visas. The US House of Representative is slated to vote on the $1.1 trillion spending bill deal on Friday. The visa fee hike is to fund a 9/11 healthcare act and biometric tracking system that will hit Indian IT companies.

We look at how the move is going to affect the Indian IT companies like Infosys, TCS and Tech Mahindra.

1. H-1B and L-1 visas are work permits that are crucial for Indian IT companies to be able operate in the US, by far the biggest market for most of them. In the case of Tata Consultancy Services, for instance, the US accounts for 51% of its revenue, while for Infosys it is even larger at 63%. In the six months to September, TCS earned a revenue of $4.2 billion from the US while Infosys made $2.9 billion.

2. The imposition of a special fee by the US Congress that effectively doubles the charges for H-1B and L-1 visas could cost IT firms an additional $400 million annually.

3. According to myvisajobs.com, the top three Indian IT companies — TCS, Infosys and Wipro — have together filed for 46,277 Labour Condition Applications (LCA) for H-1B visas in FY14. Visa costs account for an estimated 1-1.5% of an IT company’s revenues, so any increase on this account will have a direct bearing on operating margins. The new $4,000 fee would apply to companies that have at least 50 employees with 50% on an H-1B or L1 visa. These software providers would need to pay a fresh fee of $4,000 for H-1B visas and $4,500 for L1 visas.

4. “The higher costs of hiring or contracting for IT services will force more US companies to considering moving IT operations overseas, thereby reducing American jobs and tax revenues,” Nasscom said.

5. Stocks of Infosys, TCS and Tech Mahindra were trading 1.36 per cent, 1.04 per cent and 1.10 per cent down at Rs 1091.90, Rs 2414.95 and Rs 524.00, respectively at 11.57 am on Friday.

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