When a foreign parent sends a senior executive to its Indian subsidiary, cross-border payroll secondment agreements decide who is the real employer, where tax is paid, and which labour and social security rules apply. India changed materially here: the four Labour Codes took effect on 21 November 2025, and the Income-tax Act, 2025 applies from 1 April 2026. Indian companies, MNCs, global startups, NRIs and overseas investors all need to revisit old secondment paperwork. This guide explains the position in plain language. It reflects the practical view of Startup Solicitors LLP, which advises foreign groups on cross-border structures.
Understanding Cross-Border Payroll Secondment Agreements in the Indian Context
A secondment is a temporary posting of an employee from a foreign group entity (the “home entity”) to an Indian entity (the “host entity”). The employee usually stays on the home payroll, keeps a lien on the original job, and returns after the assignment. The host reimburses salary and benefits.
Indian authorities look at substance over form. In CCE & ST v. Northern Operating Systems (Supreme Court, 2022), the Court treated the overseas entity as the continuing employer and held the reimbursements taxable as manpower supply under service tax. Tax departments now apply similar logic to GST, income tax and permanent establishment (PE) risk.
Typical triggers include:
- A foreign parent seconding engineers or finance heads after company setup in India
- Expatriates sent to a newly incorporated subsidiary
- Group-wide mobility programmes for MNC employees
Businesses planning company formation in India should decide the employment model before the first expatriate lands. Our business setup in India for foreign nationals guide covers the structuring options.
Legal Framework & Regulations in India
| Area | Key Law / Authority | Secondment Impact |
|---|---|---|
| Income tax | Income-tax Act, 2025; Income Tax Department | Salary taxation, TDS, residency, PE and fees for technical services risk |
| Indirect tax | CGST Act; CBIC | Manpower supply vs. employment (Schedule III) debate |
| Labour | Code on Wages, Industrial Relations Code, Occupational Safety Code | Host-entity obligations, wage definition, contract labour |
| Social security | Code on Social Security, 2020; EPFO | “International worker” coverage; Social Security Agreements |
| Exchange control | FEMA; RBI | Remitting reimbursements to the foreign parent |
| Immigration | Employment visa; FRRO | Registration and compliance of expatriates |
| Company law | Companies Act, 2013; MCA | Disclosures, related-party transactions |
On GST, CBIC Circular 210/4/2024-GST (26 June 2024) addressed secondment and, according to several firm analyses, courts such as the Karnataka High Court have since quashed demands where the seconded staff were fully integrated into the Indian payroll and no invoice was raised. Outcomes remain fact-specific, so documentation matters. For related support, see GST advisory.
Under the Labour Codes, the unified wage definition (generally capping excluded allowances at 50% of total remuneration), gratuity changes, and social security coverage for international workers can raise the host’s cost. Confirm current rules notified by the Centre and states before finalising salary structures.
Step-by-Step Process Explained
- Decide the employment model. Choose between pure secondment (home payroll), local Indian payroll, or a dual or split-payroll arrangement.
- Check residency and treaty position. Apply the 182/60-day tests, the Double Taxation Avoidance Agreement (DTAA) and the Tax Residency Certificate (TRC).
- Draft the agreement. Specify the employer, control, supervision, cost reimbursement, term, termination and indemnities.
- Align transfer pricing. Document cost reimbursement and any mark-up. See transfer pricing compliance.
- Handle payroll and TDS. Deduct tax under the salary provisions where applicable. Our payroll management team can support this.
- Remit under FEMA. Complete Form 15CA/15CB where required. See FEMA and RBI compliance.
- Visa and registration. Apply for an employment visa and complete FRRO compliance.
Audience-specific points
- Indian residents: Returning residents may become taxable on global income. Check residential status first.
- NRIs: Seconded NRIs need careful 182-day tracking and Foreign Tax Credit planning.
- Foreign companies: Assess PE exposure and reverse-charge GST.
- Global startups: A lean team may prefer local employment contracts to avoid dual compliance.
- Overseas investors: Reimbursements to the parent may affect valuation and due diligence.
Key Challenges and Practical Issues
- Unclear employer status: Contracts say “home employer” while daily control sits with the Indian host. This mismatch invites disputes.
- GST notices: Departments may demand tax on the full reimbursement, even where no invoice exists.
- PE risk: Seconded staff in senior roles can create a service or dependent-agent PE.
- Social security double coverage: Without a certificate of coverage under a Social Security Agreement, both countries may demand contributions.
- Documentation gaps: Missing TRCs, Form 10F, board approvals and intercompany invoices weaken audit defence.
- Labour Code costs: Revised wage and gratuity calculations can change the cost base that is reimbursed.
Strategic Insights & Expert Recommendations
- Pick one narrative and make documents match it. If the Indian entity truly employs and controls the secondee, say so in the contract, payroll and emails.
- Run a pre-assignment tax model. Compare total cost under secondment, local hire and split payroll before approval.
- Document cost-to-cost reimbursement. Retain payroll registers and proof of Indian operational control for audits.
- Use the DTAA and Social Security Agreements. Obtain certificates of coverage early to avoid duplicate contributions.
- Review legacy agreements now. Contracts signed before the Labour Codes and the Income-tax Act, 2025 may no longer fit.
- Plan for scale. A group planning several postings should decide on private limited company registration or a branch or liaison office with its payroll model in mind. Broader tax questions fall under international tax advisory, taxation and compliance services and corporate law and legal advisory.
Conclusion
Well-drafted cross-border payroll secondment agreements protect foreign parents from avoidable GST demands, PE exposure and Labour Code surprises. Align contracts, payroll flows and operational reality before the employee starts work. If your group is reviewing existing secondments or planning company setup in India, Startup Solicitors LLP can assist. You can contact the team here.
This article is for general information and is not legal or tax advice. Rules change, so verify current provisions.
FAQ
1. What is a cross-border payroll secondment agreement?
It is a contract under which a foreign group company temporarily posts an employee to an Indian entity. It defines the employer, duration, control, cost reimbursement and tax responsibilities. Its wording strongly influences how Indian authorities treat the arrangement for tax and labour purposes.
2. Is GST payable on secondment of employees to India?
It depends on facts. After the Northern Operating Systems ruling, departments have claimed GST on reimbursements as manpower supply. CBIC Circular 210/4/2024-GST and some High Court decisions support relief where the Indian entity is effectively the employer. Documentation decides the outcome.
3. Do the new Labour Codes apply to foreign seconded employees?
Potentially yes. The Code on Social Security covers “international workers”, and the wage definition affects gratuity and contributions. Applicability can differ based on nationality, treaty coverage and certificates of coverage, so each assignment should be reviewed individually.
4. Can a secondee create a permanent establishment in India?
Yes. Senior staff who direct operations or conclude contracts can create a fixed-place, service or agency PE for the foreign parent. Treaty terms and actual work performed determine the risk, so clear role definitions help.
5. Should foreign companies use secondment or local employment?
Secondment suits short, specialised assignments. Local employment through the Indian subsidiary often simplifies GST, payroll and social security for longer postings. A cost and risk comparison before the assignment helps identify the better model.