Secondment of employees to Indian subsidiary structures help multinational groups move leadership, technical expertise and project teams to India quickly. They also create layered obligations under income tax, foreign exchange, indirect tax, immigration and labour law. A single oversight, such as an unreported cost recharge, can trigger withholding tax demands, a permanent establishment claim or a FEMA contravention.
This guide is written for foreign companies, global startups, MNC HR and finance teams, NRIs returning on assignment, overseas investors and Indian promoters. It explains how secondments are treated in India in 2026, which authorities are involved, and how to structure the arrangement so it holds up under scrutiny. The practical perspective draws on cross-border mandates handled by Startup Solicitors LLP.
Understanding Cross-Border Secondment in the Indian Context
A secondment is a temporary assignment in which an employee of one group entity works for another, here the Indian subsidiary, while usually keeping a link with the home employer. The commercial logic is simple: faster knowledge transfer, quality control and retention of key talent during early-stage company setup in India.
Indian tax authorities look at substance, not labels. They ask who directs the work, who bears the risk of the employee’s performance, and who benefits economically. If the Indian entity controls and supervises the secondee, it is generally treated as the economic employer, whatever the contract says.
This matters at every stage of company formation in India. Groups that register a private limited company or plan business setup in India for foreign nationals should design the secondment framework before the first expatriate lands, not after the first notice arrives.
Legal Framework & Regulations in India
Income tax. The Income-tax Act, 2025 (effective 1 April 2026) now governs, and it carries forward the earlier principles. Salary for services rendered in India is taxable in India wherever it is paid. Residential status turns on days of stay, with 182 days as the main threshold. A secondee who qualifies as “resident but not ordinarily resident” (RNOR) is not taxed in India on foreign-sourced income, which makes this status a valuable planning point. Official guidance is available on the Income Tax Department portal.
Tax treaties. The dependent personal services article of a Double Taxation Avoidance Agreement (DTAA) can exempt short stays under 183 days. The relief usually fails when the Indian subsidiary bears the cost or economically employs the secondee.
Permanent establishment (PE). In Morgan Stanley (Supreme Court, 2007), the court accepted that deputed staff can create a service PE for the foreign enterprise if they remain on its rolls and it retains a lien and control. Where the Indian entity genuinely becomes the employer, the PE risk reduces.
Transfer pricing. Recharges between associated enterprises must meet the arm’s length standard and be supported by documentation and Form 3CEB. Our transfer pricing compliance and international tax advisory teams see this as the most frequently challenged area.
FEMA. Reimbursing the overseas parent for secondee costs is a current account transaction under the Foreign Exchange Management (Current Account Transactions) Rules, 2000. It is generally permitted through an authorised dealer bank, without prior RBI approval, subject to tax certification (Forms 15CA/15CB). Capitalising unpaid costs into shares triggers FDI pricing and reporting rules. See FEMA and RBI compliance.
GST. Indian authorities commonly treat cross-border recharges as import of services, taxable under reverse charge, though the position remains litigated. Get GST advisory before the first invoice.
Immigration and labour. Foreign nationals need an employment visa (generally subject to a minimum salary threshold of USD 25,000 a year) and, for stays above 180 days, FRRO registration within 14 days of arrival. Social security applies through the EPF framework, with relief where a Social Security Agreement and certificate of coverage exist. Corporate filings sit with the Ministry of Corporate Affairs.
| Area | Key trigger | Core requirement |
|---|---|---|
| Income tax | Services rendered in India | Tax on India-sourced salary; TDS by employer |
| PE risk | Parent retains control/lien | Substance review; clear employer status |
| Transfer pricing | Cost recharge to parent | Arm’s length pricing; Form 3CEB |
| FEMA | Remittance of recharge | AD bank route; Forms 15CA/15CB |
| GST | Import of manpower services | Reverse charge assessment |
| Immigration | Stay above 180 days | Employment visa; FRRO registration |
Step-by-Step Process Explained
- Define the business case. Document the role, duration, deliverables and reporting line in India.
- Decide the employer model. Choose between a local employment contract with the Indian subsidiary, or retained home-country employment with a recharge.
- Draft the secondment agreement. Cover control, supervision, cost sharing, tax equalisation, confidentiality, IP and repatriation.
- Test tax residency and treaty position. Estimate the days of stay and RNOR eligibility, and consider a Tax Residency Certificate and Form 10F.
- Secure the visa. Process the employment visa, then complete FRRO compliance on arrival.
- Set up payroll and withholding. Run payroll management with TDS, EPF and professional tax.
- Price and remit the recharge. Apply a documented cost-plus method, withhold tax, and file Forms 15CA/15CB.
- File returns and claim credit. Claim foreign tax credit through Form 67 before the return is filed.
Who needs what:
- Indian residents (returning): Check RNOR eligibility and report foreign assets.
- NRIs: Residency can change mid-year, so track days of stay.
- Foreign companies: Assess PE exposure and recharge withholding.
- Global startups: Keep the arrangement lean and documented, with limited headcount in India.
- Overseas investors: Review whether recharges or cost capitalisation affect FDI reporting.
Key Challenges and Practical Issues
- Unwritten arrangements. Verbal secondments leave no evidence of employer status or cost allocation.
- Dual payroll. Salary paid from abroad while TDS is skipped in India is a frequent audit finding.
- Reimbursement mismatches. Recharges that differ from the actual cost, or lack a markup, invite transfer pricing adjustments.
- Visa-role mismatch. Business visa holders performing employment duties risk penalties.
- Social security gaps. Teams overlook EPF on international workers and certificate of coverage applications.
- Delayed FEMA reporting. Remittances without proper certification attract authorised dealer queries.
Strategic Insights & Expert Recommendations
- Choose the employer on purpose. A local contract reduces PE and treaty uncertainty. Retained home employment suits short, project-based work.
- Plan RNOR early. A secondee’s first years in India can shield foreign income from Indian tax if residency is managed carefully.
- Keep recharges at actual cost with a documented markup. Align invoices, board approvals and benchmarking.
- Tie tax equalisation to cash flow. Employees dislike surprises, and an unplanned Indian liability damages assignment morale.
- Review timing. Ask whether the assignment aligns with the best time to set up an India subsidiary in 2026.
- Strengthen governance. Reflect secondees in the subsidiary’s board, signatory and corporate governance compliance records.
Conclusion
Secondment of employees to Indian subsidiary arrangements succeed when contract terms, payroll, tax filings and FEMA remittances tell the same story. In 2026, with the Income-tax Act, 2025 now in force, a documented structure matters more than ever, particularly for groups completing company formation in India or scaling an existing entity. Review residency, PE exposure, transfer pricing and visa status before every deployment.
If you are planning a cross-border assignment, Startup Solicitors LLP can help you assess the structure through the contact page. For India’s startup and investment policy context, refer to DPIIT.
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Frequently Asked Questions
1. What is the secondment of employees to an Indian subsidiary?
It is a temporary assignment where an employee of a foreign group company works for its Indian subsidiary. The employee may keep a link with the home employer, but Indian tax law looks at who controls the work and bears the cost, which usually points to the Indian entity as economic employer.
2. Is salary of a seconded employee taxable in India?
Yes. Salary for services rendered in India is taxable in India regardless of where it is paid. The Indian entity must deduct TDS. A DTAA may give relief for stays under 183 days, but that relief is usually unavailable when the Indian subsidiary bears the cost.
3. Does secondment create a permanent establishment in India?
It can. Following Morgan Stanley (Supreme Court, 2007), a service PE may arise if the foreign parent retains control and a lien over deputed staff and continues paying them. Making the Indian subsidiary the true employer, with clear documentation, reduces this risk.
4. Is RBI approval needed to reimburse the foreign parent for secondee costs?
Generally not. Reimbursement is a current account transaction under FEMA and is routed through an authorised dealer bank with tax certification (Forms 15CA/15CB). Approval or reporting issues arise only if costs are converted into equity or fall outside current account rules.
5. Which visa does a foreign secondee need for India?
A foreign employee generally needs an employment visa, subject to a minimum salary threshold of USD 25,000 a year. Stays above 180 days require FRRO registration within 14 days of arrival. A business visa is not suitable for productive employment in the Indian subsidiary.