Secondment of Employees to India with PE, GST and TDS Rules (2026)

Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.

A secondment places a foreign parent's employee with its Indian subsidiary for a fixed period. If the parent stays the real employer and recharges the salary, India treats it as a supply of manpower. The subsidiary pays 18 percent IGST under reverse charge (Northern Operating Systems, Supreme Court, 19 May 2022). The recharge can also be the parent's income, so TDS applies (Centrica, Delhi High Court, 2014). Parent staff in India can create a service PE.

This page explains how to structure a secondment to an Indian subsidiary. It sets out the GST, income tax, PE and provident fund cost of each structure, as the law stands on 23 Oct 2026.

What is a secondment of employees to India?

In a secondment of employees to India, a foreign company sends its employee to work for its Indian subsidiary for a fixed term. The employee works under the subsidiary's direction. The employee often stays on the parent's payroll, keeps home benefits and returns at the end.

Groups use secondments for three common reasons:

1. To place an experienced manager in a new Indian subsidiary while it builds a local team.
2. To transfer know how, systems or processes from the parent to Indian staff.
3. To keep the employee's home pension, social security and career path intact while they work abroad.

The tax consequences depend on who the real employer is. Two Indian judgments frame the analysis. In Northern Operating Systems the Supreme Court looked at service tax on the recharge. In Centrica the Delhi High Court looked at income tax and TDS. Both courts asked the same question and both found the overseas company was the employer.

A secondee is different from a short business visitor. A visitor stays employed abroad and works for the parent. A secondee works for the Indian company in India. Our guide to tax residency for foreign employees covers short visits.

How should a secondment agreement be structured?

A secondment needs a written agreement between the parent and the Indian subsidiary, plus an assignment letter to the employee. The agreement decides the tax result as much as the facts do. Courts read it closely. In Northern Operating Systems the Supreme Court reviewed the features of the group's 2007 secondment agreement clause by clause.

Clause	What it should say	Why it matters in India
Parties and term	Parent, Indian subsidiary, start and end dates, extension process	Fixes the period for PE day counts and PF status
Role and reporting line	Position in the Indian company, who the secondee reports to	Shows who directs the work
Control and supervision	The Indian company directs daily work and appraises performance	Relevant to the real employer test
Authority	Secondee acts only for the Indian company and cannot bind the parent	Limits dependent agent PE risk
Pay and benefits	Who pays salary, bonus, home benefits, and in which currency	Drives GST, TDS and FEMA treatment
Recharge	Amount, basis (cost or cost plus), invoicing frequency	GST value, transfer pricing and TDS base
Risk and responsibility	Who bears the risk of the secondee's work	The Supreme Court weighed this in Northern Operating Systems
Termination and return	Who can end the secondment, recall rights, lien on home job	Centrica relied on the lien point from Morgan Stanley
Taxes	Tax equalisation, who bears Indian tax, gross up	Avoids disputes on who funds TDS
Social security	Home scheme continuation, certificate of coverage	Decides Indian PF status
Intellectual property and data	Ownership of work product, confidentiality	Usually with the Indian company for work done for it

We see two drafting errors often. The first is a parent template that says the secondee "remains under the direction of" the parent while also working for India. The second is a recharge clause that adds a markup "for administration" with no service behind it. Both feed the argument that the parent supplies manpower or services.

Who is the real employer of a secondee?

The real employer is the company that, in substance, employs the person. Indian courts weigh all the facts and give no single test priority. In paragraph 41, Northern Operating Systems quoted an earlier ruling: "No one test of universal application can ever yield the correct result." The court applied substance over form.

Factor	Points to the parent as employer	Points to the Indian company as employer
Employment contract	Contract stays with the parent; Indian letter only sets local terms	Indian employment contract; parent contract suspended or ended
Lien on employment	Parent keeps a lien and the right to recall	No right to return, or return only by fresh hiring
Pay	Parent pays salary and recharges it	Indian company pays salary on its own payroll
Selection and dismissal	Parent selects and can dismiss	Indian company selects and can dismiss
Daily control	Parent directs the work	Indian company directs the work
Risk of results	Parent answers for the work	Indian company bears the risk
Benefits	Home pension and social security continue through the parent	Indian PF and benefits only

The two courts read similar facts in the same direction.

In Northern Operating Systems (Civil Appeals 2289 to 2293 of 2021, 19 May 2022), the Indian company had operational control. It bore the risk of the secondees' work and reimbursed actual cost, including an administrative charge of 1 percent of cost (paragraph 32). The Court still found the overseas company was supplying manpower. It held that the "'control' test is not necessarily determinative" (paragraph 39). It also held that payroll retention for home social security did not change the outcome (paragraph 53).

Centrica India Offshore Private Limited v CIT was decided on 25 Apr 2014 (W.P.(C) 6807/2012, 2014:DHC:2172-DB). The secondees worked under the Indian company's direction. They stayed on the overseas payroll with home retirement and social security plans. The Delhi High Court held that "the real employer of these seconded employees continues to be the overseas entity concerned" (paragraph 39). It rejected the argument that the Indian company was the economic employer (paragraph 35).

Both courts quoted the Supreme Court's 2007 ruling in DIT v Morgan Stanley and Co. Inc., (2007) 7 SCC 1: "A deputationist has a lien on his employment" (Northern Operating Systems, paragraph 35; Centrica, paragraph 36). Centrica relied on that passage to support the service PE finding.

The practical lesson is that operational control by the Indian company does not, on its own, make it the employer. Groups that want the Indian company to be the employer must move the contract, the pay and the dismissal right to India.

Is a secondment a supply of manpower under GST?

Usually yes, where the parent stays the employer and recharges the cost. The Indian subsidiary then imports a manpower supply service from the parent. It pays 18 percent IGST under reverse charge, in cash, and claims the credit. A secondee employed directly by the Indian company is outside GST. Schedule III says services by an employee to an employer are not a supply.

Northern Operating Systems was a service tax case covering periods before GST. The Board applied it to GST in Instruction No. 05/2023-GST of 13 Dec 2023, with two limits:

1. The judgment "should not be applied mechanically in all the cases" (paragraph 2.3). Officers must examine the contract and facts of each secondment.
2. The extended period under section 74(1) of the CGST Act cannot be invoked merely because GST was not paid (paragraph 3.3). It needs evidence of fraud, wilful misstatement or suppression.

The second point follows the Supreme Court's own result. The Court restored the demands for the normal period only. It set aside the extended period demands as "unjustified and unreasonable" (paragraph 66), because it found no wilful suppression.

The GST mechanics on a recharge are those of any import from a related party:

1. Time of supply: the earlier of the booking date and the payment date, for associated enterprises abroad.
2. Value: the invoice value counts as open market value where the subsidiary is eligible for full input tax credit. The second proviso to rule 28(1) of the CGST Rules sets this.
3. Free secondment: Circular No. 210/4/2024-GST of 26 Jun 2024 allows a nil value where the parent charges nothing. The subsidiary must have full credit and issue no invoice.
4. Self invoice within 30 days, tax in Table 3.1(d) and credit in Table 4(A)(2) of GSTR-3B.

The tax is revenue neutral for a subsidiary with full credit, but the interest is not. The Supreme Court rejected the revenue neutrality argument, holding that a later refund right is "an irrelevant detail" (paragraph 59). An exporter that recovers credit only by refund also carries the cash cost.

Our guides to reverse charge on import of services and GST on cross charges between related companies cover the mechanics in full.

Can a secondee create a permanent establishment for the parent?

Yes. A secondee who remains the parent's employee can be the parent furnishing services in India. Most of India's treaties have a service PE clause with a day count, and some have a shorter count for related enterprises. A secondee with authority to conclude contracts for the parent can also create a dependent agent PE.

Treaty	Service PE clause	Threshold	Related enterprise rule
India UK DTAA	Article 5(2)(k)	More than 90 days in any twelve month period	More than 30 days for an associated enterprise (5(2)(k)(ii)); services taxable as fees for technical services under Article 13 are excluded
India US DTAA	Article 5(2)(l)	More than 90 days in any twelve month period	No minimum period for services performed for a related enterprise (5(2)(l)(ii)); fees for included services are excluded
India UAE DTAA	Article 5(2)(i)	More than 9 months in aggregate within any twelve month period, same or connected project	No separate rule

A secondment of a year or more crosses every threshold in the table if the secondee is the parent furnishing services. The way out is to show that the secondee furnishes services for the Indian company, as its employee in substance, not for the parent.

Centrica shows how hard that is when the overseas company keeps the lien. The Authority for Advance Rulings had held that the secondees created a service PE. The Delhi High Court dismissed the writ, so the AAR ruling stood (paragraph 41). The Court also held the payments were fees for technical services under the India UK treaty. Under the India Canada treaty, it held they were fees for included services (paragraphs 30 to 32). The secondees made know how available to Indian staff.

A PE has two costs. India taxes the profit attributable to it at 35 percent plus surcharge and cess. The parent must file an Indian return. Where the recharge is at cost, the attributable profit may be small. The compliance burden and the audit exposure are not.

Our guide on how to avoid permanent establishment risk lists the controls. Treaty specific day counts are in our guides to the India UK DTAA and the India US DTAA.

How is the secondee's salary taxed and paid in India?

Salary for work done in India is taxable in India wherever it is paid. Section 9(3)(a) of the Income Tax Act, 2025 deems salary for services rendered in India to accrue in India. A secondee who stays 182 days or more in a tax year is resident under section 6. The employer deducts TDS under section 392.

Payroll for secondees usually takes one of three forms:

1. Indian payroll only. The subsidiary pays the full salary in rupees and deducts TDS. Nothing is recharged.
2. Split payroll. The subsidiary pays part in India and the parent pays the rest abroad. Both parts are salary for services in India and taxable here.
3. Home payroll with recharge. The parent pays everything abroad and recharges the subsidiary. The subsidiary runs a shadow payroll in India to compute and deposit TDS on the full Indian salary.

Under section 392, the employer deducts at the average rate on the estimated salary for the tax year. Section 392(4)(a)(i) lets the employer count salary from other employers that the employee declares. Section 392(8) converts foreign currency salary to rupees at the prescribed rate. The employer issues Form 130 (old Form 16) and files Form 138 (old Form 24Q) each quarter.

Section 392(2) lets the employer bear the tax on non monetary perquisites, such as housing and school fees. Expat packages often use tax equalisation, where the employee pays only a hypothetical home tax and the group funds the Indian tax. The tax the group pays for the employee is itself taxable salary, so the computation is grossed up.

Two short stay exemptions rarely help a secondee. Schedule IV, serial 3 to the Income Tax Act, 2025 covers a foreign citizen employed by a foreign enterprise. It exempts the pay for a stay of up to 90 days in a tax year. The enterprise must do no business in India, and the pay must not be deductible from its Indian income. Treaty employment articles exempt stays up to 183 days, but only where a non resident employer pays and no Indian PE bears the cost. A secondee whose salary is recharged to the subsidiary fails that cost condition.

Is TDS deductible on salary reimbursements to the parent?

Often yes. If the parent is the real employer, the recharge is a payment to the parent for services, not a pass through of salary. Centrica held that calling the payment a "reimbursement" "cannot be determinative" (paragraph 38). It held that the money "accrues to the overseas entity" (paragraph 40). So section 393(2), Table serial 17, can require TDS on the recharge.

The subsidiary then faces two deductions on the same money. Salary TDS under section 392 covers the employee, and TDS under section 393 covers the recharge to the parent. Groups manage this in three ways:

Route	How it works	Form and section
Treaty analysis showing the recharge is not taxable in India	Recharge falls outside the treaty's technical fees article and there is no PE	Form 146 and Form 145 Part C, with the treaty analysis
Lower or nil deduction certificate for the parent	Parent shows the recharge carries little or no profit and salary TDS already covers the employee's tax	Form 128 (old Form 13) under section 395(1)
Payer's application to fix the taxable part	Officer decides what portion of the recharge is income	Form 129 (old Form 15E) under section 395(2)
Local employment instead of secondment	Indian company employs and pays the person; no recharge	Section 392 only

The cost of getting this wrong is high. If TDS was due and not deducted, section 35(b)(ii) of the Income Tax Act, 2025 (old section 40(a)(i)) disallows the expense. Interest under section 398 runs at 1 percent a month for late deduction and 1.5 percent a month for late deposit.

The treaty answer depends on the parent's country. Under the India UK treaty, Centrica found the secondees' services were technical services under Article 13. Under the India US treaty, fees for included services need technology to be made available. Its service PE rule has no day count for related enterprises. Under the India UAE treaty there is no technical fees article, so the question becomes PE alone.

Our guides to TDS on payments to non residents and lower deduction certificates in Form 128 cover the procedure.

How does transfer pricing apply to secondment recharges?

A recharge from the parent is an international transaction between associated enterprises. It must be at arm's length under Chapter X of the Income Tax Act, 2025 (sections 161 to 173). The subsidiary reports it in Form 48 (old Form 3CEB) under section 172. Recharges at cost are common and rarely challenged in India, because India is the paying side.

Three points deserve care:

1. A markup on a pure cost recharge suggests the parent is providing a service. That supports both the manpower supply view for GST and the services view for TDS.
2. The parent's tax authority may expect a markup if the parent provides recruitment, mobility or payroll services. Those services should sit in a separate service charge, priced and documented.
3. The GST value, the Form 48 value and the TDS base should match. Officers compare the three.

Where the secondee also supervises group services, the cost may belong in a management fee instead. Our guide to management fees paid to a UAE parent covers the benefit test for those charges.

Do secondees pay Indian provident fund?

Yes, unless a social security agreement exempts them. A foreign national working for a covered establishment in India is an international worker. Paragraph 2 of the Employees' Provident Funds Scheme, 2026, in force from 29 Jun 2026, says so. Paragraph 9(5) makes an international worker a PF member from the first day.

Secondee's position	Indian PF status	Provision
From an agreement country, with a valid certificate of coverage	Excluded employee; no Indian PF for the certificate period	EPF Scheme, 2026, paragraph 2
From an agreement country, certificate not yet issued or expired	Member from the first day, or from the day after expiry	EPF Scheme, 2026, paragraph 9(5)
From the UK, with a UK certificate of coverage, for periods from 15 Jul 2026	Excluded for the detachment period under the UK India Double Contributions Convention	Convention in force 15 Jul 2026
From the US, the UAE or Singapore (no agreement)	Member from the first day	EPF Scheme, 2026, paragraphs 2 and 9(5)

EPFO lists agreements in operation with 19 countries and the Canadian province of Quebec. The UK convention, in force from 15 Jul 2026 (PIB, 17 Jun 2026), was not yet on that list on 23 Oct 2026. India has no agreement with the United States, the UAE or Singapore.

Under the EPF Scheme, 1952, international workers contributed on full pay. The Delhi High Court described those rules as applying "without any cap to the pay drawn" (paragraph 43). That was in SpiceJet Ltd v Union of India, W.P.(C) 2941/2012, decided on 4 Nov 2025. The EPF Scheme, 2026 is less clear. Paragraph 18(3) caps every member's contributions at the notified ceiling, with no carve out for international workers. The ceiling rose to INR 25,000 a month on 17 Sep 2026.

EPFO's international workers page carried no guidance on the 2026 wage base when we checked it on 23 Oct 2026. Ask the EPFO regional office in writing before you pay on the capped base. Until EPFO clarifies, we contribute on full Code wages. Underpaying brings arrears, damages and interest, while overpaying only builds the employee's balance.

Full salary PF has an income tax cost. Section 17(1)(h) of the Income Tax Act, 2025 covers employer contributions to PF and two other retirement schemes. The total above INR 7,50,000 in a tax year is a taxable perquisite. Withdrawal is also limited. Under the 1952 scheme, an international worker from a country without an agreement could withdraw only at 58 or on permanent incapacity. A Division Bench of the Delhi High Court upheld that rule in the SpiceJet judgment of 4 Nov 2025.

Our guides to PF for international workers and social security agreements cover the details.

What visa does a secondee need?

A secondee who works for the Indian company needs an employment visa, not a business visa. A business visa covers meetings, negotiations and short visits for the foreign employer. The Indian company usually issues the offer or assignment letter that supports the employment visa application.

Registration with the Foreigners Regional Registration Office follows the visa conditions. Our guides to the employment visa and FRRO registration cover the process.

Should the group use a secondment, a local hire or an employer of record?

The structure decides most of the risk. A pure secondment keeps the employee's home ties but brings GST, TDS and PE exposure. A local hire by the Indian company removes most of that exposure but cuts the home ties. An employer of record suits a group with no Indian entity, which is a different problem.

Point	Secondment with recharge	Local employment by the Indian company	Employer of record
Who employs	Parent	Indian subsidiary	Indian EOR company
GST on the arrangement	18 percent IGST under reverse charge on the recharge	None on salary (Schedule III)	18 percent GST on the EOR's invoice
Salary TDS	Section 392, via shadow payroll	Section 392	Section 392, by the EOR
TDS on payments abroad	Possible on the recharge (Centrica)	None for salary	Not applicable
PE risk for the parent	Service PE and dependent agent risk	Low, if the person acts only for the subsidiary	High for a foreign company with no Indian entity
Home pension and social security	Continue, with a certificate of coverage where available	Usually stop, unless the parent runs a separate plan	Usually stop
Indian PF	International worker rules	International worker rules	International worker rules

A middle route is common. The employee signs an Indian employment contract and goes on Indian payroll, while the parent keeps a dormant home contract for pension continuity. That reduces GST and TDS risk, but a retained lien can still point to the parent as employer. We review the home documents as closely as the Indian ones.

For a foreign company without a subsidiary, our comparison of an employer of record and a subsidiary sets out the trade offs.

What changed in 2026

The Income Tax Act, 2025 replaced the Income Tax Act, 1961 from 1 Apr 2026. When this page was first published on 12 Jan 2026, the 1961 Act and the EPF Scheme, 1952 still applied. The two judgments are unchanged.

Topic	Old rule	New rule	Date	Instrument
Salary TDS	Section 192; Forms 16 and 24Q	Section 392; Forms 130 and 138	1 Apr 2026	Income Tax Act, 2025
TDS on payments to the parent	Section 195; Forms 15CA and 15CB	Section 393(2), serial 17; Forms 145 and 146	1 Apr 2026	Income Tax Act, 2025
Salary deemed to accrue in India	Section 9(1)(ii)	Section 9(3)(a)	1 Apr 2026	Income Tax Act, 2025
Disallowance for no TDS	Section 40(a)(i)	Section 35(b)(ii)	1 Apr 2026	Income Tax Act, 2025
Lower deduction certificate	Section 197; Form 13	Section 395(1); Form 128	1 Apr 2026	Income Tax Act, 2025
PF scheme for international workers	Paragraph 83, EPF Scheme, 1952	Paragraphs 2 and 9(5), EPF Scheme, 2026	29 Jun 2026	G.S.R. 525(E)
UK secondees and Indian PF	No agreement	Detached workers exempt for up to 60 months with a certificate	15 Jul 2026	UK India Double Contributions Convention
PF wage ceiling	INR 15,000 a month	INR 25,000 a month	17 Sep 2026	S.O. 5109(E)

What has happened since 12 Jan 2026

The new income tax law started on 1 Apr 2026, with new section and form numbers. The EPF Scheme, 2026 replaced the 1952 scheme on 29 Jun 2026. The UK convention on contributions started on 15 Jul 2026, and the PF wage ceiling rose on 17 Sep 2026.

Worked example

A US company seconds a product manager to its Bengaluru subsidiary for 18 months from 1 Jul 2026. The manager stays on the US payroll and keeps US benefits. The parent recharges the cost each quarter. The subsidiary is registered for GST and eligible for full input tax credit. We assume INR 88.00 to the US dollar.

The annual figures

Item	Working	Amount (INR)
Base salary paid by the US parent	USD 1,80,000 x 88.00	1,58,40,000
US benefits cost	USD 20,000 x 88.00	17,60,000
Annual recharge at cost	USD 2,00,000 x 88.00	1,76,00,000
IGST under reverse charge on the recharge	1,76,00,000 x 18%	31,68,000
TDS on the recharge with no certificate, assuming it is taxed as PE profit at 35% plus 2% surcharge plus 4% cess	1,76,00,000 x 37.128%	65,34,528
Tax cost of a section 35(b)(ii) disallowance, assuming the subsidiary pays tax under section 200 at 25.168%	1,76,00,000 x 25.168%	44,29,568

GST

The subsidiary books each quarter's recharge and pays IGST in that month's GSTR-3B. For the year that is INR 31,68,000 in cash, claimed back as credit in the same returns. Suppose it missed the first quarter's INR 7,92,000 and paid 91 days late. Interest at 18 percent a year would be INR 35,543 (rounded).

PE and TDS on the recharge

The manager works in India for the subsidiary. Article 5(2)(l)(ii) of the India US treaty covers services performed in India for a related enterprise. It can create a service PE with no day count. So the subsidiary cannot assume the recharge is free of Indian tax.

The parent applies for a certificate in Form 128 before the first recharge. It shows that the recharge is at cost and that the salary already suffers TDS under section 392. If the officer issues a nil or low rate certificate, the subsidiary deducts at that rate. Without it, and on our assumption that the recharge is taxed as PE profit, the subsidiary deducts 37.128 percent on the gross recharge. That is INR 65,34,528 a year. The parent then claims a refund in its Indian return.

Salary TDS

The subsidiary runs a shadow payroll. It includes the INR 1,58,40,000 salary and the taxable part of the benefits, and deducts TDS under section 392 each month. It deposits the tax by the 7th of the next month and files Form 138 each quarter.

Provident fund

The US has no social security agreement with India, so the manager is an international worker and a member from the first day. Suppose PF wages, after the 50 percent wage rule, are INR 6,60,000 a month. On the full pay basis we follow, each side pays 12 percent: INR 79,200 a month. The employer's share for a year is INR 9,50,400. Section 17(1)(h) taxes employer contributions to a recognised provident fund above INR 7,50,000 a year. So up to INR 2,00,400 is a taxable perquisite, less any part of the employer share that goes to the pension scheme instead.

The alternative

The group moves the manager onto an Indian employment contract and Indian payroll for the 18 months. The parent ends the lien and runs a separate home pension top up. There is no recharge, so no reverse charge, no TDS on a payment to the parent and a much lower PE risk. PF and salary TDS stay the same.

Common mistakes

1. Using the parent's standard secondment template. It often keeps control and the lien with the parent. Fix: draft the agreement for Indian law, clause by clause.
2. Treating "reimbursement at cost" as outside GST. Northern Operating Systems involved cost plus 1 percent and was still a manpower supply. Fix: pay reverse charge on recharges where the parent is the employer.
3. Withholding only salary TDS. Centrica held the recharge itself was income of the overseas entity. Fix: analyse the recharge under the treaty and seek Form 128 where needed.
4. Counting PE days by tax year. Treaty tests run over any twelve month period. Fix: track secondee and visitor days on a rolling basis.
5. Ignoring the related enterprise PE rules. The UK treaty uses 30 days and the US treaty has no day count. Fix: read the parent's treaty before the secondee arrives.
6. Starting work before the certificate of coverage arrives. PF applies from the first day without it. Fix: apply for the home certificate before the move.
7. Running a split payroll without a shadow payroll. The home paid salary is taxable in India. Fix: collect home pay data monthly and deduct TDS on the whole salary.
8. Giving the secondee authority to sign for the parent. Fix: limit authority in writing to acts for the Indian company.

To review a planned secondment, email [email protected] with the draft agreement and the assignment letter. Our payroll management team can run the shadow payroll.

Checklist

1. Decide whether the person will be a secondee or a local employee of the Indian company.
2. Draft a secondment agreement that sets control, risk, pay, recharge, authority and termination.
3. Check the parent's treaty for service PE day counts and the related enterprise rule.
4. Restrict the secondee's authority to acts for the Indian company.
5. Apply for the home country certificate of coverage where an agreement exists.
6. Obtain an employment visa and complete any FRRO registration.
7. Set up the shadow payroll and deduct TDS under section 392 on the full Indian salary.
8. Analyse the recharge for TDS and apply for Form 128 or Form 129 where needed.
9. Book each recharge and pay 18 percent IGST under reverse charge in that month's GSTR-3B.
10. Issue a self invoice within 30 days and claim the credit in Table 4(A)(2).
11. Enrol the secondee in PF from the first day if no valid certificate exists.
12. Report the recharge in Form 48 and keep GST, TDS and transfer pricing values aligned.
13. Track the secondee's days in India on a rolling twelve month basis.
14. Review the arrangement at each extension, and before the return date.

Frequently Asked Questions

Is GST payable on secondment of employees to India?+

Usually yes, where the foreign parent stays the employer and recharges the salary. The Supreme Court in Northern Operating Systems (19 May 2022) treated such an arrangement as a manpower supply. The Indian company pays 18 percent IGST under reverse charge and claims the credit. A person employed directly by the Indian company is outside GST under Schedule III.

What did the Supreme Court decide in Northern Operating Systems?+

In Civil Appeals 2289 to 2293 of 2021, decided on 19 May 2022, the Court held that the Indian company received a taxable manpower supply service from its overseas group company. Secondees stayed on the overseas payroll, and the Indian company reimbursed cost plus 1 percent. The Court set aside the extended period demands because it found no wilful suppression.

Does Northern Operating Systems apply automatically to GST cases?+

No. CBIC Instruction No. 05/2023-GST of 13 Dec 2023 tells officers not to apply the judgment mechanically. Each secondment must be examined on its contract and facts. The instruction also says the extended period under section 74(1) of the CGST Act needs evidence of fraud, wilful misstatement or suppression, not mere non payment.

What did the Delhi High Court hold in Centrica?+

In Centrica India Offshore Private Limited v CIT (25 Apr 2014), the Court held that the overseas entities remained the real employers of the secondees. The salary reimbursements were their income, and the reimbursement label was not decisive. The Court dismissed the writ, so the AAR ruling stood. That ruling found a service PE and required tax to be withheld.

Is TDS required on salary reimbursement to a foreign parent?+

Often yes, where the parent is the real employer. Centrica held that such reimbursements accrue to the overseas entity as income. TDS then applies under section 393(2) of the Income Tax Act, 2025, unless the treaty relieves it. A certificate in Form 128 under section 395(1) can reduce or remove the deduction.

Can a seconded employee create a permanent establishment in India?+

Yes. A secondee who remains the parent's employee can be the parent furnishing services in India. The India UK treaty creates a service PE after 30 days for an associated enterprise. The India US treaty has no day count for related enterprises. Authority to conclude contracts for the parent can also create a dependent agent PE.

Who is the economic employer of a secondee in India?+

Indian courts look at substance, weighing the contract, the lien, pay, selection and dismissal, daily control, risk and benefits. No single factor decides. In Northern Operating Systems and Centrica, operational control by the Indian company did not outweigh the parent's continuing employment and lien. The overseas company was the employer in both.

Is a secondee's salary paid abroad taxable in India?+

Yes. Section 9(3)(a) of the Income Tax Act, 2025 deems salary for services rendered in India to accrue in India, wherever it is paid. In a split payroll, both the Indian and the home paid parts are taxable here. The Indian employer runs a shadow payroll and deducts TDS on the full salary under section 392.

Do foreign secondees have to join provident fund in India?+

Yes, unless excluded. A foreign national working in a covered establishment is an international worker under paragraph 2 of the EPF Scheme, 2026 and joins from the first day under paragraph 9(5). A secondee from an agreement country with a valid certificate of coverage is an excluded employee for the certificate period.

Is PF for international workers payable on full salary?+

Under the EPF Scheme, 1952, yes; the Delhi High Court described the rules as applying without any cap on pay. Paragraph 18(3) of the EPF Scheme, 2026 caps contributions at the notified ceiling, INR 25,000 a month from 17 Sep 2026, with no carve out for international workers. Until EPFO clarifies in writing, we contribute on full Code wages.

Does the UK India social security convention cover secondees?+

Yes, from 15 Jul 2026. The UK India Double Contributions Convention lets a detached worker stay in the home scheme for up to 60 months with a certificate of coverage. It covers contributions only, not benefits. A UK secondee who avoids Indian PF under it can still create a service PE under the treaty.

Does a secondee need an employment visa or a business visa?+

An employment visa. A secondee works for the Indian company in India, which a business visa does not allow. A business visa covers meetings and short visits for the foreign employer. The Indian company usually supports the application with an offer or assignment letter.

Can the Indian subsidiary avoid GST by not charging for the secondment?+

Not reliably. A free service from a related person abroad is still a supply under Schedule I. Circular No. 210/4/2024-GST allows a nil value only where the subsidiary has full input tax credit and no invoice is issued. A subsidiary with exempt supplies must value the service under rule 28.

Is a secondment recharge an international transaction for transfer pricing?+

Yes. A recharge from a foreign parent is an international transaction under Chapter X of the Income Tax Act, 2025 and goes in Form 48 under section 172. Recharges at cost are common. A markup suggests the parent is providing a service, which strengthens the GST manpower supply view and the TDS view.

Is local employment better than secondment for an Indian subsidiary?+

It often lowers tax risk. A person employed and paid by the Indian company is outside GST, needs no TDS on payments abroad and carries less PE risk for the parent. The trade off is the employee's home pension and social security. A retained home contract with a lien can still point to the parent as employer.

Sources

• Supreme Court of India, C.C., C.E. and S.T., Bangalore (Adjudication) v M/s Northern Operating Systems Private Limited, Civil Appeals 2289 to 2293 of 2021, 19 May 2022, https://api.sci.gov.in/supremecourt/2021/14156/14156_2021_2_1501_36077_Judgement_19-May-2022.pdf
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