A quiet but consequential problem has been brewing in the world of cross-border employment: US companies that chose to let their H-1B workers operate from India during the current visa logjam could find themselves on the hook for unexpected tax bills, according to a recent report by The Times of India. What began as a practical workaround to keep projects moving may now force employers to confront the foggy intersection of immigration policy, tax treaties, and remote-work culture.
The situation traces back to the congestion at US consulates in India. Many H-1B holders had returned home for routine visa stamping, only to discover that interview dates were pushed deep into the calendar. With no certainty on when they could re-enter the US, employers allowed them to log in from India instead of pausing assignments or losing skilled talent. It was a quick solution, but experts say it came with hidden strings.
A Tax Presence Without Intention
The heart of the matter lies in how India’s tax authorities might interpret such arrangements. When an employee sitting in Bengaluru or Hyderabad directly contributes to the business of a US company, particularly in a role tied to billing, client work, or decision-making, India could argue that the foreign employer is effectively “doing business” in the country. That interpretation raises the possibility of a permanent establishment, a term that gives local authorities the right to tax a share of profits attributed to operations carried out on Indian soil.
No company set out to create a tax presence in India merely to accommodate stranded staff. Yet in a landscape shaped by tax treaties and residency tests, intention matters far less than what can be proved on paper. Multinationals are now being nudged to audit their remote-work structures and examine whether certain employees have been de facto extensions of the firm’s operations in India.
Backlog, Compliance, And Personal Finance Fallout
The ramifications are not limited to corporate ledgers. For professionals stuck in India for months, prolonged stays may alter their personal tax status. Once a worker crosses defined residency thresholds, India’s tax law may require reporting and payment of tax on global income. Treaty relief may mitigate double taxation, but it rarely eliminates paperwork, nor does it spare the individual from reconciling two different tax systems.
Companies face an unappetising set of choices. They can rush to regularise the arrangement by shifting employees to their Indian subsidiaries; they can reassign projects to avoid crossing tax lines; or they can push harder for expedited visa appointments. None of these outcomes is smooth, and all involve time, expense, or hard decisions.
What this episode underlines is how quickly remote work has outpaced the bureaucratic machinery that governs it. A few years ago, hardly anyone imagined that an employee typing code from Ahmedabad for a firm headquartered in California could reshape tax exposure thousands of miles away. But this is exactly where the global workforce now finds itself—caught between flexibility and compliance, and forced to reconcile the two without a roadmap.
For employers, the costs are not just financial. They extend to planning, forecasting, and the broader project of managing a distributed workforce in a post-pandemic world. For workers, the experience is a reminder that mobility, once celebrated, now carries a thick stack of administrative complications.
Source – https://www.outlookmoney.com/tax/us-firms-confront-tax-questions-as-h-1b-employees-work-from-india