Seconding Foreign Employees to India: PE, GST, PF and Tax Guide 2026

By Nagavarapu Sudheer, M.Com., F.C.S., L.L.B., Partner, A2 Consultants

Sending a few experienced people from headquarters to India is usually the fastest way to stand up a new subsidiary, a GCC or a plant. It is also one of the most common sources of avoidable tax and compliance exposure. A secondment touches four separate regimes at once: corporate tax (permanent establishment), GST, social security and personal tax. This guide sets out what a foreign company should settle before the first assignee lands.

1. Who is the real employer?

Almost every secondment question turns on one point: during the assignment, is the person working for the Indian company or for the foreign parent? Indian tax authorities look at substance, not the label on the agreement. The factors that matter are who directs and controls the day-to-day work, who bears the cost, who can end the assignment, whose business the work actually serves, and whether the person sits on the Indian payroll.

Where the Indian entity controls the work, bears the cost and pays the salary (directly or by reimbursing it at cost), the arrangement is easier to defend as employment by the Indian company. Where the parent keeps control and charges a fee, it looks like a service from the parent, with the consequences below.

2. Permanent establishment risk for the parent

If the seconded employee is really performing the parent's business in India, the parent may be treated as having a permanent establishment (PE): a service PE under many treaties, or a fixed place or dependent agent PE where the person habitually concludes contracts for the parent. India can then tax the profits attributable to that PE.

• Keep contract-signing authority for the parent's own customers outside India.
• Put the assignee under the Indian company's management, with Indian KPIs and reporting lines.
• Recharge salary costs to the Indian company at cost and document why there is no mark-up.
• Watch treaty time thresholds for service PEs where the parent provides services directly.

3. GST on secondment

The Supreme Court's decision in Northern Operating Systems treated a secondment arrangement as a supply of manpower by the overseas entity to the Indian company, taxable under reverse charge. After that ruling, many Indian subsidiaries received demands on salary reimbursements to their parents.

The position was eased by CBIC Circular No. 210/4/2024-GST (26 June 2024). Where the Indian entity is eligible for full input tax credit and no invoice is raised by the related foreign entity, the value of the service can be treated as nil. The Delhi High Court (Metal One) and Karnataka High Court (Alstom Transport) have since applied this reasoning in favour of taxpayers.

The protection is strongest when assignees are on the Indian payroll with TDS deducted, the parent is reimbursed at cost without mark-up, and no invoice is issued by the parent. Arrangements with a mark-up, a service fee or dual control remain exposed and are worth reviewing.

4. Provident fund for "international workers"

India's provident fund rules treat foreign nationals working for a covered Indian establishment as "international workers". Unlike Indian employees, for whom the wage ceiling of Rs 15,000 a month applies, contributions for international workers are computed on the full salary, at 12% by the employee and 12% by the employer. The new Employees' Provident Funds Scheme, 2026 under the Code on Social Security keeps this framework.

There are two ways out of this cost:

• Social Security Agreement (SSA): an employee from a country that has an SSA with India and who stays covered by the home scheme can be exempted on the basis of a Certificate of Coverage. Obtain it before the assignment starts.
• Structuring: where no SSA exists, contributions apply from the first rupee and should be built into the assignment budget.

The constitutional validity of the international worker provisions has been challenged. The Karnataka High Court struck them down (Stone Hill Education Foundation, 2024), while the Delhi High Court upheld them (SpiceJet, November 2025). Until the Supreme Court settles the conflict, continued compliance is the lower-risk course.

5. Personal tax and withholding

• Salary for work performed in India is taxable in India, wherever it is paid. Split payroll does not change this.
• The Indian employer must withhold tax on the Indian-taxable salary, including any home-country portion that is recharged.
• Residential status depends on days in India; short assignments may qualify for treaty relief under the dependent personal services article, but only if the cost is not borne by an Indian employer or PE.
• Assignees need a PAN, and the employer needs Form 16 and TDS returns that reflect the full package, including allowances and benefits in kind.

6. Immigration and registration

A seconded employee who will work in India needs an employment visa, not a business visa, and must meet the salary threshold for that category. Registration with the FRRO may be required depending on the visa and nationality. See our guide to the India employment visa and FRRO registration.

A pre-assignment checklist

1. Decide the employment model: Indian payroll, recharge at cost, or a fee-based service.
2. Sign a secondment agreement that matches the facts on control, cost and termination.
3. Obtain an SSA Certificate of Coverage where available, or budget for 24% PF on full salary.
4. Set up Indian payroll, PAN and TDS for the India-taxable salary.
5. Confirm the GST position (no invoice, cost reimbursement, full ITC) and document it.
6. Review PE exposure and contract-signing authority for the parent.
7. Apply for the correct visa and complete FRRO registration on arrival.
8. Align transfer pricing documentation for any recharges between the entities.

Talk to A2 Consultants

A2 Consultants helps foreign companies structure secondments into India across tax, GST, provident fund and immigration, so assignments start cleanly and do not create exposure for the parent. The first conversation is free: book a 30-minute call at www.a2consultants.in or write to sudheer@a2consultants.in.