- A secondment is defensible when the Indian company is the real employer for the period — it controls the work, bears the cost and risk, and the secondee's salary is paid or fully recharged at cost without markup.
- If the parent continues to control the secondee's work, the parent may be furnishing services in India through its personnel: a service PE (no day threshold for related-party services under India–US) and fees for technical services exposure.
- The Supreme Court in Northern Operating Systems (2022) treated salary reimbursements for secondees as consideration for manpower supply by the foreign company, attracting GST under reverse charge; CBIC's 2024 circular limits the valuation impact where full ITC is available.
- Indian payroll withholding, provident fund as an 'international worker', FRRO registration and the employee's Indian tax residence all follow from day one of the assignment.
Two models
| True secondment (Indian company as economic employer) | Service arrangement (parent provides personnel) | |
|---|---|---|
| Who directs the work | Indian company's management | Parent |
| Who bears cost and risk | Indian company — salary paid locally or recharged at cost | Parent, recovering a fee |
| Payroll | Indian payroll; TDS on salary; PF as international worker; or split payroll with full recharge | Parent payroll; Indian withholding on the fee |
| Parent's Indian tax | None, if the parent is not rendering a service | Service PE risk; FTS withholding on the fee |
| GST | Contested — Northern Operating Systems treats reimbursement as manpower supply; Circular 210/4/2024 allows nil/invoice value where full ITC | Import of services; reverse charge on the fee |
| Transfer pricing | Recharge at cost is a reimbursement; secondee's cost enters the Indian base | Fee must be arm's length |
Why the distinction matters
Indian tax authorities have long argued that a parent which sends its employees to India and gets reimbursed is providing services — creating a service PE (under India–US, services to a related enterprise create a PE with no day threshold) and making the reimbursement fees for technical services subject to withholding. Taxpayers have won where the facts showed a real transfer of employment: the Indian company selected and could terminate the secondee, directed the work, bore the cost without markup, and the secondee's lien on the foreign employment was only a right to return. The documents — secondment agreement, Indian employment letter or deputation letter, Indian payroll, organisation chart — must support that story, and so must conduct.
Payroll and social security
- Income tax: salary for services rendered in India is taxable in India whoever pays it. The Indian company withholds through payroll on the full salary (including the home-country portion, grossed up for any tax equalisation). The secondee's residential status follows the day-count rules; treaty relief on the home-country portion is available only for short stays meeting the dependent-personal-services conditions (183 days, non-Indian employer, no PE cost-bearing — which secondments usually fail).
- Provident fund: secondees from countries without a social security agreement with India are "international workers" contributing on full salary with no ceiling; those from agreement countries can remain in the home system with a certificate of coverage.
- Immigration: employment visa; FRRO registration within 14 days for stays over 180 days; the visa must name the Indian entity as employer for a true secondment.
GST
In CCE v Northern Operating Systems (2022) the Supreme Court held, on the facts of that group's arrangements, that the foreign company was supplying manpower to the Indian company and the salary reimbursement was the consideration, taxable under reverse charge. The decision led to widespread notices. CBIC's Circular No. 210/4/2024-GST then clarified that where the Indian recipient is eligible for full input tax credit, the value declared in the foreign affiliate's invoice is accepted, and where no invoice is issued the value may be deemed nil — removing the cash exposure for most fully taxable businesses but not the characterisation question. Companies with exempt supplies or blocked credits remain exposed and should structure secondments as genuine employment transfers.
Checklist
- Tripartite secondment agreement: Indian company controls and may terminate; parent retains only the right of return; cost recharged at actual with no markup, or paid directly by the Indian company.
- Indian deputation/employment letter; Indian payroll from day one; PF registration as international worker unless covered by an agreement.
- Visa and FRRO in the Indian company's name.
- Transfer pricing: recharge reported as reimbursement in Form 48; secondee cost in the Indian operating base.
- GST: position memo on Northern Operating Systems and Circular 210; self-invoice if reverse charge is paid.
- Keep the secondee out of the parent's service delivery to the Indian company — the same person cannot be both the Indian company's employee and the parent's service provider.
Frequently asked questions
Does seconding an employee to India create a permanent establishment for the parent?
Not if the secondment is a genuine transfer of employment — the Indian company controls the work, bears the cost and the parent renders no service. Where the parent continues to direct the secondee's work for its own purposes, a service PE can arise (with no day threshold for related-party services under India–US).
Is TDS applicable on salary reimbursements to the foreign parent?
On a genuine secondment, the reimbursement is of salary on which Indian payroll tax has been withheld, not fees for technical services. Where the arrangement is in substance a provision of services by the parent, FTS withholding applies to the fee.
Is GST payable on secondment reimbursements?
Following Northern Operating Systems, tax authorities treat them as manpower supply under reverse charge. Circular 210/4/2024-GST accepts the invoice value — or nil where no invoice — if the Indian company has full input tax credit, which neutralises the cost for most businesses.
Must a secondee be on Indian payroll?
Salary for work in India is taxable in India and the Indian company must withhold on it. Either run Indian payroll or ensure the home payroll is fully grossed up and the Indian withholding is discharged.
Do secondees have to contribute to Indian provident fund?
Yes, as international workers on full salary, unless they come from a country with a social security agreement with India and hold a certificate of coverage.
Can the secondee continue to report to a manager at the parent?
Functional dotted lines are common, but day-to-day control and performance management should sit with the Indian company for the secondment to hold.
Sources
Primary sources only. Statutory text is read from the official publication; where a provision has been renumbered, the pre-2026 reference is given alongside so older material can be reconciled.
- Income-tax Act, 2025 and Income-tax Rules, 2026 — Income Tax Department, Tax Laws & Rules
- Double Taxation Avoidance Agreements — Income Tax Department
- CGST Act, IGST Act, CGST Rules and GST circulars — CBIC
Last reviewed on 1 November 2026 by Monal Agarwal, FCA, VMS Jhunjhunwala & Co. Law stated as at that date; the Income-tax Act, 2025 and Income-tax Rules, 2026 apply from 1 April 2026.
