Employee Secondment in India: Simple Guide to TDS, Tax Risks & Structuring

 Secondment may feel like just an internal transfer—but for Indian tax laws, it can mean salary, FTS, or even permanent establishment.

1. What Is Employee Secondment?

Secondment means temporarily sending an employee from a foreign company to work in an Indian company. It happens commonly in:

• Multinational group companies

• Technical or consulting assignments

• Knowledge transfer or senior management support

2. Who Is the Real Employer?

Tax treatment depends on who is the real employer:

Factor	Foreign Company	Indian Company
Who pays salary?	✅ Sometimes	✅ Sometimes
Who controls daily work?	❌	✅
Who benefits from the work?	❌	✅
Who bears risk/liability?	❌	✅

If Indian company controls the work and reimburses salary at cost, Indian company is treated as employer, and TDS is under Section 192 (Salary).

3. When Does TDS Apply and Under Which Section?

Situation	TDS Section	Nature
Employee works under Indian control	Sec. 192	Salary
Indian company reimburses salary without markup	Sec. 192	Salary
Foreign company controls employee, sends for services	Sec. 195	FTS (Fees for Technical Services)
Reimbursement includes markup or management fee	Sec. 195 + GST	Treated as service, not salary

4. GST and PE Risk – Easy View

• GST: Not applicable on pure salary reimbursements. Applicable if reimbursement includes any markup or profit component.

• Permanent Establishment (PE): If seconded employee acts on behalf of foreign company, signs deals, or manages contracts, the foreign company may be taxed in India.

5. Real Case Summaries (Simplified)

Case	Ruling
Centrica Offshore	Foreign company remained employer → FTS applies
Morgan Stanley	Seconded employees created PE, but TP pricing protected them
Yamazen India (2024)	Seconded employee worked under Indian company → Treated as salary

6. Secondment Models with TDS Planning

Model	Key Features	TDS	Best When
Pure Salary Reimbursement	Indian company controls work, pays cost without profit	Sec. 192	Long-term secondment
Technical Deployment	Foreign company sends employee, includes fee or profit	Sec. 195	Short-term consulting/tech projects
Dual Contract	Employee signs with both entities	Sec. 192 (India side)	HR/immigration structuring needs

Tip: Always remove markup from salary cost sharing to avoid FTS/GST problems.

7. Simple Compliance Checklist

Do This	✅ Why It Matters
Sign a secondment agreement	Clarifies employer, control, reimbursement
Deduct TDS under correct section	Avoid penalties (Sec. 192 vs 195)
Avoid markup in cost-sharing	To prevent FTS & GST
Keep supporting documents	For audits or queries
Disclose in Form 3CEB (if group company)	Transfer Pricing requirement

8. Common Mistakes to Avoid

🚫 Reimbursing salary with profit or fee
🚫 Letting seconded employee sign contracts on behalf of foreign company
🚫 Using vague agreements with no control clarification
🚫 Not deducting TDS at all due to foreign payroll assumption

9. Final Takeaway: Make Secondment Clean and Compliant

• Control = Employer for tax purposes.

• If Indian company benefits from seconded employee’s work, treat it as salary and deduct TDS under Section 192.

• Avoid fee-like structures or loose documentation—they invite GST, FTS classification, and PE risk.

“Structure the secondment right from day one. Otherwise, compliance will chase you later.”