Working for a foreign entity while residing in India

Shalini Agarwal
In Se Legal, London
sagarwal@inselegal.com

The Covid-19 pandemic heralded a new era of remote employment opportunities worldwide. While the boundaries of traditional working from home (WFH) arrangements were significantly broadened for millions of employees, the new ways of working brought about by Covid-19 have augmented global mobility challenges for many companies.

In India, immigration laws require all foreign individuals working in the country to hold either a valid employment visa or have other valid authorisation to reside and work in India. An employment visa is typically sponsored by an employer to work in India for an Indian entity.

Alternatively, eligible individuals may enter, reside and work in India with an Overseas Citizenship of India (OCI) card. Where such individuals are working in India for Indian entities on the correct visa category there is less cause for concern, as applicable tax and employment law requirements are complied with as part of the visa authorisation process.

But what happens when employees choose to work remotely for overseas employers while residing in India?

Despite the pandemic, India has not radically changed its immigration rules and policies to accommodate or enable foreign visitors or Indian citizens to reside in India while working remotely for foreign entities. Nor has it enabled a digital nomad visa akin to those issued by many other states (though, at the height of the pandemic, Indian immigration authorities did ease regulations and waive penalties for breach of immigration rules and processes).

Apart from the immigration considerations, employers must also consider the tax and employment law implications that arise when individuals working remotely for overseas entities choose to reside in India.

For foreign employers without an established presence in India the main risk in permitting employees to work remotely from India is the inadvertent creation of a permanent establishment (PE). An employees working remotely while resident in India may create a ‘business connection’ as per provisions of the Indian Income Tax Act. If Indian tax authorities establish that an employee working in India has created a business connection as per the meaning under the Act, then their employer will be deemed to have a PE in India, and the revenue attributable to the work carried out by employees in India could be taxable. In addition to the tax implications that arise for the employer, the individual working remotely in India may also become personally liable for tax payments.

The foreign employer will also need to consider how salaries are paid if their employee proposes to remain in India for an extended period and needs funds to meet their day-to-day expenses. Foreign direct investment and banking rules regulate the remittance of monies in and out of India and practical considerations of opening and operating an Indian bank account must be considered.

Apart from the obvious legal and financial challenges, companies shouldn’t overlook the cultural and organisational challenges that are likely to arise under a WFH arrangement where an employee chooses to work remotely from India.

For example, employees who previously worked in western environments will need to factor in the different and diverse working culture in India. Even for those with a good understanding of the Indian working environment, a WFH arrangement in India can throw up additional and surprising challenges for both employees and their employers, such as the physical infrastructure and potential technological interruptions, which (alongside the ongoing pandemic and any distractions at home) may create stress, impede output and be unsustainable in the long run.

Employers must be ready to address these challenges and ensure robust communication channels, meaningful goal setting and other measures to boost engagement and retention. Employers must also ensure adequate data security and data protection measures are in place to maintain client confidentiality and ensure compliance with data protection laws.

In conclusion, remote working requests that involve taking up residence in India must be considered carefully. Any such arrangements must be considered in line with HR, tax, finance and employment obligations and entitlements, and ensure the practical and cultural ramifications of such an arrangement are addressed.