Cross-Border Secondment: Tax, GST & Social Security Traps

Why Cross-Border Secondment Is a Compliance Minefield in India

When a multinational seconds an employee from its overseas headquarters to its Indian subsidiary, the arrangement triggers a cascade of tax, GST, and social security obligations across at least two jurisdictions. What looks like a simple internal transfer becomes a regulatory minefield with three distinct layers of risk:

• Income tax: Who is the employer? Which entity bears the TDS obligation on salary?
• GST: Is the secondment an import of manpower supply services subject to reverse charge?
• Social security: Must the seconded employee contribute to India's EPF? Can dual contributions be avoided?

Each of these questions has been litigated extensively in India, with the Supreme Court, multiple High Courts, and the CBIC all weighing in with often-conflicting guidance. This guide synthesizes the current state of play as of March 2026, covering the key cases, regulatory circulars, and practical compliance steps.

The Employer Question: Who Employs the Seconded Worker?

The fundamental question driving all three layers of compliance is deceptively simple: who is the employer of the seconded employee?

The Two-Employer Problem

In a typical secondment, the employee has two simultaneous employer relationships:

• De jure (legal) employer: The overseas parent or group entity that originally hired the employee and typically retains the employment contract
• De facto (economic) employer: The Indian entity that exercises day-to-day operational control over the employee, assigns work, evaluates performance, and benefits from the employee's services

Indian tax authorities, GST authorities, and labour regulators may each arrive at different conclusions on this question, creating the compliance minefield that multinationals must navigate.

Tests Applied by Indian Authorities

Indian authorities apply several tests to determine the true employer:

Income Tax: Section 192 TDS and Permanent Establishment Risk

TDS on Salary Under Section 192

Under Section 192 of the Income Tax Act, every employer paying salary to an employee must deduct TDS (tax deducted at source) at the applicable income tax slab rates. For seconded employees, the question is which entity has the TDS obligation.

If the Indian entity is treated as the employer (the economic employer test), it must:

• Deduct TDS on the entire global salary of the employee, including the portion paid abroad by the overseas entity
• Issue Form 16 to the employee
• File quarterly TDS returns (Form 24Q)

The Delhi ITAT has ruled in several cases that where the Indian entity is the economic and de facto employer, reimbursement of salary costs to the overseas parent is not a payment for services under Section 195 (since it is merely reimbursement of the Indian entity's own salary cost). This means no separate withholding under Section 195, but full withholding under Section 192.

Permanent Establishment Risk for the Overseas Entity

Secondment creates permanent establishment (PE) risk for the overseas entity under the applicable DTAA. If the Indian tax authorities determine that the seconded employee is acting on behalf of the overseas entity (rather than the Indian subsidiary), they may argue that the overseas entity has a Service PE or Dependent Agent PE in India.

The Samsung Electronics case set an important precedent: the Dispute Resolution Panel held that secondment of employees by a Korean parent to its Indian subsidiary created a Fixed Place PE. The key factors included:

• Employees continued to report to the Korean parent on strategic matters
• The parent retained the right to recall employees
• Employees were implementing the parent's technology and processes

To mitigate PE risk, ensure the secondment agreement clearly establishes:

• The Indian entity has full operational control over the seconded employee
• The employee reports exclusively to the Indian entity's management
• The employee does not conclude contracts on behalf of the overseas entity
• The Indian entity bears the economic cost (even if reimbursed)

GST: The Northern Operating Systems Earthquake and Its Aftermath

The NOS Supreme Court Ruling (May 2022)

The Supreme Court's decision in Northern Operating Systems Private Limited (May 19, 2022) shook the secondment landscape. The Court held that the secondment of employees by overseas group entities to the Indian company constituted a supply of manpower services, taxable under the Service Tax regime (the predecessor to GST).

The Court reasoned that the overseas entity was the true employer (it retained the right to recall, the employee returned after secondment, and the overseas entity bore social security costs). The Indian entity was merely a recipient of manpower supply services, and the reimbursement of salary costs was consideration for those services.

Under GST, this translates to:

• The secondment is an import of services (supplier located outside India, recipient in India)
• The Indian entity is liable to pay GST under Reverse Charge Mechanism (RCM) at 18%
• The taxable value is the total reimbursement paid to the overseas entity (including the overseas salary component and social security contributions)

The CBIC Circular 210/4/2024-GST: A Partial Relief

Following the NOS ruling, the CBIC issued Circular No. 210/4/2024-GST on June 26, 2024, providing significant relief. The circular clarified:

• The NOS judgment should not be applied mechanically in all cases
• Each case requires careful examination of its distinct factual matrix
• For related party transactions (secondment within a group), where full ITC is available to the Indian entity and no invoice is raised, the value of supply may be deemed nil under Rule 28 of the CGST Rules

This means that if the Indian entity is eligible for full input tax credit and the overseas entity does not raise an invoice for the secondment, the GST impact can effectively be zero.

The Alstom Transport Karnataka HC Ruling (July 2025)

The Karnataka High Court's decision in Alstom Transport India Limited (July 15, 2025) marked a significant shift in favor of taxpayers. The Court held:

• Secondment of expatriate employees by the foreign parent to the Indian entity does not attract GST
• The arrangement constitutes an employer-employee relationship excluded from the definition of "supply" under Schedule III of the CGST Act
• Services rendered by employees to their employer are explicitly excluded from GST

The Court relied on three key facts:

1. Expatriate employees were on the payroll of the Indian entity
2. Individual employment agreements existed between the Indian entity and each expat
3. Employees functioned under the direct control and supervision of the Indian entity

The Court also relied on CBIC Circular 210/4/2024-GST, noting that where no invoice is raised and full ITC is available, the value of supply may be deemed nil under Rule 28.

Current GST Compliance Position (March 2026)

The legal landscape as of March 2026:

The safest approach for a foreign company seconding employees to India is to structure the arrangement so that the Indian entity is clearly the employer with individual employment contracts, direct payroll, and operational control, and then rely on the CBIC Circular and Alstom HC precedent for nil GST valuation.

Social Security: EPF for International Workers

The Mandatory EPF Contribution Rule

Under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, all employees working for an establishment covered under the Act must contribute to the Employee Provident Fund (EPF). For foreign nationals (termed "International Workers"), the rules are particularly onerous.

The Delhi High Court's landmark ruling in November 2025 mandated that every foreign national working for an Indian-registered employer must be enrolled in the EPFO from day one. The contribution structure for International Workers is:

• Employee contribution: 12% of full salary (no wage ceiling exemption of INR 15,000 per month that applies to domestic workers)
• Employer contribution: 12% of full salary
• Total: 24% of total salary contributed to EPF

For a seconded executive earning INR 50 lakh per annum, this means INR 12 lakh per year in combined EPF contributions, a significant cost that many companies fail to budget for.

The Social Security Agreement (SSA) Exemption

The only relief comes through India's bilateral Social Security Agreements (SSAs). As of March 2026, India has SSAs with 20 countries:

Belgium, Germany, Switzerland, Denmark, Luxembourg, France, South Korea, Netherlands, Hungary, Finland, Sweden, Czech Republic, Norway, Canada, Japan, Austria, Portugal, Australia, and a CECA with Singapore. India and the United Kingdom signed a Double Contribution Convention (a form of social security agreement) in February 2026, but it has not yet entered into force — it is expected to become operational alongside the India-UK trade agreement, with both sides indicating it should be live around mid-2026.

An employee from an SSA country who is seconded to India can claim "excluded employee" status if:

• They are contributing to the social security program of their home country
• They hold a Certificate of Coverage (CoC) issued by the home country's social security authority
• The secondment is for the period specified in the SSA (typically up to 36 months, extendable to 60 months)

Employees with excluded status are exempt from Indian EPF contributions entirely.

The US and UK Gap (Narrowing)

Historically, the United States has been the most significant gap in India's SSA network. India has been actively pursuing an SSA with the US through the Trade Policy Forum. Without an SSA, American employees seconded to India face mandatory EPF contributions on full salary with no exemption.

The UK Double Contribution Convention signed in February 2026 is set to close one major gap once it takes effect. Under its terms, UK nationals seconded to India for up to 36 months will be able to obtain excluded employee status, avoiding dual social security contributions. The convention has not yet entered into force — it is expected to become operational alongside the India-UK trade agreement, around mid-2026 — so until then, UK secondees remain subject to standard EPF rules. This is particularly significant given the large number of UK-India secondments in the financial services and technology sectors.

Cost Impact of Missing SSA

Legal advisers estimate that the Delhi HC's 2025 ruling raises assignment costs by 20-25% for companies seconding employees from non-SSA countries (notably the US). The employer's 12% EPF contribution on the secondee's full Indian salary is not creditable in the home country, making it a pure additional cost.

Structuring the Secondment Agreement: A Compliance Checklist

The secondment agreement is the foundational document that determines tax, GST, and social security outcomes. Key provisions to include:

For Income Tax Optimization

• Clearly state the Indian entity is the economic employer and bears the full cost
• Grant the Indian entity operational control, performance evaluation authority, and right to assign duties
• Specify that the employee reports to the Indian entity's management hierarchy
• Include a clause that the employee will not conclude contracts on behalf of the overseas entity

For GST Optimization (Following Alstom Principles)

• Execute individual employment agreements between the Indian entity and each seconded employee
• Place the employee on the Indian entity's payroll for the India-paid component
• Ensure the Indian entity (not the overseas entity) raises no invoice for the secondment
• Confirm full ITC eligibility of the Indian entity

For Social Security Optimization

• For SSA country employees: Obtain the Certificate of Coverage (CoC) from the home country before the secondment begins
• For non-SSA country employees: Budget for 24% EPF contribution on full salary and explore structuring alternatives
• Document the secondment duration and any extensions in the agreement

Transfer Pricing Implications

The reimbursement of salary costs between group entities in a secondment arrangement is an international transaction under transfer pricing rules. Key considerations:

• The reimbursement must be at arm's length (cost-to-cost with no markup is generally acceptable for genuine secondment)
• If the Indian tax authorities determine the overseas entity is providing "services" rather than merely deploying an employee, they may impute a markup, increasing the Indian entity's deductible cost and the overseas entity's Indian income
• Maintain contemporaneous transfer pricing documentation covering the secondment arrangement, cost allocation methodology, and benchmarking analysis
• File Form 3CEB (transfer pricing audit report) if the aggregate value of international transactions exceeds INR 1 crore

Cost Modelling: The True Cost of Seconding an Employee to India

Most multinationals underestimate the total cost of a secondment to India. Below is a cost model for a senior manager earning USD 150,000 (approximately INR 1.25 crore) annually:

For a non-SSA country employee, the additional EPF cost alone is INR 30 lakh per year (employer plus employee contributions). If GST under RCM is also applicable (and ITC is not fully available), the incremental cost can reach INR 52.5 lakh per year above the base salary.

This is why getting the secondment structure right at the outset is not just a compliance exercise but a significant cost optimization opportunity. The difference between a well-structured secondment (Indian entity as employer, full ITC, SSA exemption) and a poorly structured one can be 30-40% of the secondee's annual cost.

The New Income Tax Act, 2025: What Changes for Secondments

The Income Tax Act, 2025, which replaces the 1961 Act effective April 1, 2026, introduces several provisions relevant to cross-border secondments:

• Section 9 (revised): Income deemed to accrue or arise in India continues to cover salaries earned in India, regardless of where payment is made. The substance-over-form approach to determining the employer relationship is reinforced.
• Section 163 (international transactions): Redefines the scope of international transactions between associated enterprises. Secondment cost reimbursements clearly fall within this definition, reinforcing the transfer pricing documentation requirement.
• Enhanced documentation: The new Act increases compliance obligations for cross-border arrangements, aligning with OECD/BEPS guidance on profit shifting through services arrangements.

Foreign companies planning secondments starting from FY 2026-27 should review their existing secondment agreements against the new Act's provisions and update documentation accordingly.

Visa and Immigration Considerations

The secondment arrangement must be consistent with the employee's visa category. Key rules:

• A seconded employee must hold an Employment Visa (E-visa), not a Business Visa. Business Visas do not permit employment by an Indian entity.
• The Employment Visa application must reference the Indian entity as the employer, consistent with the secondment agreement's characterization of the Indian entity as the economic employer.
• The visa duration should match the secondment period. Extensions require fresh applications with the Foreigners Regional Registration Office (FRRO).
• The employee must register with the local FRRO within 14 days of arrival if the visa exceeds 180 days.

An inconsistency between the visa application (which names the Indian entity as employer) and the actual arrangement (where the overseas entity retains employer control) creates risk across all three compliance layers and can be used by authorities to challenge the employer characterization.

Practical Compliance Timeline for a 2-Year Secondment

Exit Compliance: When the Secondment Ends

When the seconded employee's assignment concludes, several end-of-assignment compliances must be completed:

Tax Clearance Certificate

Before departing India, the seconded employee must obtain a tax clearance certificate under Section 230 of the Income Tax Act. The Assessing Officer will verify that all Indian tax obligations have been discharged before issuing the certificate. This process can take 2-4 weeks, so initiate it well before the employee's planned departure date.

EPF Withdrawal

If the employee contributed to EPF (non-SSA country), they can apply for withdrawal of the accumulated balance. However, the EPF rules require a minimum of 2 months after cessation of employment before withdrawal is processed. For international workers, the EPFO has a separate process that can take 3-6 months.

Final Tax Return

The employee must file a final Indian income tax return for the stub period (from April 1 of the financial year to the date of departure). This return is due by July 31 of the assessment year, even if the employee has already left India.

De-registration from FRRO

Employees who registered with the Foreigners Regional Registration Office must surrender their registration certificate at the time of departure.

Red Flags That Trigger Scrutiny

Indian tax and GST authorities are increasingly focused on secondment arrangements. The following red flags are most likely to trigger scrutiny:

• Large reimbursements without GST: If the Indian entity reimburses significant salary costs to the overseas entity without paying GST under RCM, the GST authorities may issue show-cause notices citing the NOS ruling
• No EPF enrollment: The EPFO conducts establishment inspections and may penalize companies that have not enrolled international workers
• Inconsistent employer characterization: If the secondment agreement calls the overseas entity the employer, but the visa application names the Indian entity, authorities may question the arrangement
• No transfer pricing documentation: The absence of TP documentation for salary reimbursements is a common trigger for detailed scrutiny during tax assessments
• Extended secondments beyond 36 months: Most SSA certificates cover up to 36 months. Assignments extending beyond this period without renewed documentation lose the EPF exemption

Key Takeaways

• The employer determination drives all three compliance layers. Structure the secondment so the Indian entity is clearly the economic employer with individual employment contracts and operational control.
• For GST, the Alstom HC ruling (July 2025) and CBIC Circular 210/4/2024-GST provide strong grounds for nil GST valuation where the Indian entity is the employer, full ITC is available, and no invoice is raised. But the NOS Supreme Court ruling remains technically good law.
• EPF contributions at 24% of full salary are mandatory for international workers. The only exemption is for employees from SSA countries (20 countries as of 2026) with a valid Certificate of Coverage.
• Secondment creates PE risk for the overseas entity. Ensure the employee does not act on behalf of the overseas entity or conclude contracts in its name.
• Transfer pricing documentation for the salary reimbursement is essential. Maintain arm's length evidence and file Form 3CEB if applicable.