company in Lisbon, Tel Aviv, or Vilnius isn't a simple payroll line item. The moment that the employment relationship crosses a border, it triggers tax obligations in two countries simultaneously, and getting either side wrong creates exposure that surfaces months or years later, usually during an audit, a funding round, or a tax notice neither party saw coming.
Vandey Global has spent 8+ years managing exactly this intersection for foreign companies hiring in India, an ISO-certified, India-first Employer of Record that has onboarded 600+ employees across 50+ international clients in Lithuania, Portugal, Poland, and Israel. The compliance questions in this piece are the ones we get asked in nearly every onboarding call, because remote work doesn't remove tax complexity; it just hides it until someone goes looking.
Why Remote Work Creates Tax Exposure in Two Countries at Once
The basic principle that catches most foreign companies off guard: tax liability is determined by where the work is physically performed, not by where the company is registered or which currency the salary is paid in. Under India's Income Tax Act, 1961, salary income is taxable in India if the services are rendered in India, regardless of the employer's location, the currency of payment, or whether the employer has any registered presence in India at all.
This means a remote worker based in India and employed by a Portuguese or Israeli company is, by default, subject to Indian tax law on that income. At the same time, depending on the employer's home country rules, the same income may also be subject to withholding or reporting obligations there. Without proper structuring, that overlap becomes double taxation, with two countries each claiming a share of the same salary.
Tax Residency Decides Everything
Before any other compliance question matters, residency status has to be settled first, because it determines which income is taxable where. Under Indian law, an individual's residency status falls into one of three categories:
| Residency Status | Tax Treatment |
|---|---|
| Resident (RES) | Taxable on global income, including foreign-sourced salary |
| Resident but Not Ordinarily Resident (RNOR) | Taxable on Indian-sourced income and income from businesses controlled in India |
| Non-Resident (NRI) | Taxable only on Indian-sourced income |
The standard test is physical presence: 182 days or more in India during the financial year generally establishes tax residency. But each remote worker's situation also has to be checked against the residency rules of the employer's country, since most jurisdictions apply their own separate test, a 183-day rule, a substantial presence test, or a statutory residence test built around ties like family, accommodation, and work location. A worker can, in some circumstances, be treated as a tax resident under both countries' rules simultaneously, which is exactly the scenario Double Taxation Avoidance Agreements (DTAAs) exist to resolve.
What Gets Withheld, Filed, and Claimed Back
TDS and Advance Tax
When an Indian entity employs a worker directly, Tax Deducted at Source (TDS) under Section 192 is withheld from salary automatically, monthly, and remitted to the tax authority. The complication starts when the employer has no Indian registration at all, which is the position most foreign companies hiring remote workers in India are actually in.
A foreign employer with no Indian entity or EOR in place typically does not, and structurally cannot, withhold Indian TDS. In that scenario, the burden of paying tax shifts entirely to the worker through advance tax. Any individual whose total tax liability exceeds ₹10,000 in a financial year is required to estimate their tax liability, calculate it under the applicable regime, and pay it directly to the Income Tax Department in quarterly instalments. Missing these instalments triggers interest under Sections 234B and 234C, calculated from the due date, not from when the shortfall is discovered.
This is the structural gap an Employer of Record closes: once an EOR is the registered legal employer, TDS withholding under Section 192 happens automatically every payroll cycle, the way it would for any domestically employed worker, removing the burden of self-assessed advance tax from the employee entirely.
Double Taxation Relief Under DTAA
Where a remote worker's salary genuinely gets taxed in two places, despite correct residency determination, DTAA provisions are what prevent double payment. India has DTAAs in force with most of its major trading and talent partners, including the countries Vandey typically manages cross-border hiring for: Portugal, Israel, Lithuania, and Poland. To claim relief, the worker generally needs to:
- Obtain a Tax Residency Certificate (TRC) from the country where they are considered residents
- File Form 10F with foreign tax identification details where the TRC doesn't cover all required fields
- Disclose foreign income and assets in Schedule FA of their Indian income tax return
- File Form 67 along with proof of foreign tax paid, to claim Foreign Tax Credit (FTC) against the equivalent Indian tax liability
Missing documentation, an expired TRC, an unfiled Form 67, and a passport without clear entry and exit stamps are the single most common reasons workers end up paying tax twice on the same income and have to fight for a refund later instead of avoiding the liability at the point of filing.
Permanent Establishment Risk - The Employer's Side of the Exposure
Everything above covers the worker's tax position. The employer's exposure is a separate, and often larger, problem: Permanent Establishment (PE) risk.
A PE is triggered when Indian tax authorities determine that a foreign company has a taxable business presence in India through the activities of its remote worker. The classic triggers remain unchanged: an employee habitually concluding contracts in India on the company's behalf, a fixed place of business maintained in India (including a home office used predominantly for company work), or the employee operating as a dependent agent. If PE is established, the foreign employer becomes liable for Indian corporate tax on India-attributable profits, generally assessed at 35% plus surcharge, and assessments are frequently retrospective, covering two to three years of back liability.
Read More: How to Hire Employees in India Without a Legal Entity Using an Employer of Record
The 2025 OECD Update - What Actually Changed
In November 2025, the OECD issued its most significant revision to the Model Tax Convention's commentary on Article 5 since 2012, specifically addressing when remote work creates PE. The update introduces a working-time safe harbor: if an employee spends less than 50% of their total working time for the company at a remote location in another treaty country over any 12-month period, that location generally does not constitute a "fixed place of business," and no PE arises from that fact alone.
This gives genuine relief for incidental or partial remote arrangements, but it does not remove PE risk for full-time, India-based remote workers employed by a foreign company. A worker based in India full-time, working for a foreign employer with no other Indian presence, is still squarely inside PE risk territory if they conclude contracts, serve local clients directly, or work from a home office used predominantly for the company's business. The safe harbor protects hybrid and short-term cross-border arrangements; it does not protect the standard case of a full-time India-based remote hire.
Indian courts have also been actively narrowing one specific PE trigger. A December 2025 Delhi High Court ruling confirmed that physical presence is required to establish a Service PE under certain bilateral treaty language, a useful clarification, but fixed-place PE through home offices remains a live and high-risk exposure regardless of that ruling.
Social Security and EPF Obligations for Cross-Border Workers
The third compliance layer, separate from income tax and PE risk, is social security. India has signed and operationalized Social Security Agreements (SSAs) with roughly 18-20 countries, including several in Europe. An SSA allows a worker on temporary assignment to remain covered under their home country's social security system instead of contributing to both systems simultaneously, provided they hold a Certificate of Coverage (CoC) issued by the relevant authority.
Where no SSA exists between India and the employer's home country, or where the worker is a long-term Indian tax resident rather than a temporary international assignee, EPF obligations apply under the standard domestic framework: 12% of basic salary from the employer, 12% from the employee, filed monthly. Getting this distinction wrong, treating a long-term remote hire as a short-term SSA-covered assignee, or vice versa, is a common and costly compliance gap that surfaces only when EPFO cross-checks payroll filings against immigration and assignment records.
Why an Employer of Record Solves Both Sides of This at Once
Every obligation above- TDS withholding, advance tax avoidance, DTAA documentation support, PE ring-fencing, and EPF/SSA classification, gets resolved structurally the moment a compliant Employer of Record becomes the legal employer of record for the India-based worker.
With Vandey Global as the EOR:
- TDS is withheld and remitted every payroll cycle under our own registration, removing the advance tax burden from the employee
- The PE question is ring-fenced because Vandey, not your foreign entity, is the registered legal employer and the entity with a presence in India, the same structural protection detailed in our Indian Payroll Service for Foreign Companies: Compliance Made Simple.
- EPF and SSA classification is handled correctly from day one, since our compliance team determines whether a hire qualifies as a long-term resident employee or a short-term international worker under an applicable SSA, and files accordingly
- Statutory documentation is issued on schedule: Form 16 annually, payslips monthly, so the worker has what they need to support DTAA and Foreign Tax Credit claims in their personal filing without scrambling for records later.
This is also why companies that start their India hiring journey assuming an informal remote arrangement, a wire transfer, no entity, no EOR, end up exposed on every front at once: no TDS withholding, no PE ring-fencing, and no clarity on which country's social security system actually applies.
Read More: Entering the Indian Market: Why Foreign Companies Choose an EOR Over an HR Consultancy.
Conclusion
International tax compliance for remote workers in India isn't a single rule to learn; it's three overlapping systems, individual income tax residency and DTAA relief, corporate PE exposure, and social security coordination that all have to be managed correctly and simultaneously. Getting one piece right while missing another doesn't reduce the exposure; it just shifts where the liability eventually surfaces.
For most foreign companies, the structurally simplest fix is also the fastest one: route the employment relationship through a compliant Employer of Record that's already registered in India, already filing under its own EPF and ESI codes, and already tracking which DTAA and SSA provisions apply to your specific hiring geography.
Talk to Vandey Global's compliance team about structuring your India remote hiring correctly from the outset, or explore our full Employment Services to see exactly what's covered from onboarding through exit. You can also run the numbers on our Cost Estimator to compare the cost of EOR-structured hiring against the exposure of managing this compliance independently.
FAQs
1. Is a remote worker in India taxed if their employer has no registered Indian entity?Yes. Indian tax law taxes salary income based on where the services are rendered, not on where the employer is registered. A remote worker physically performing work in India is subject to Indian income tax regardless of their employer's location, though without a local entity or EOR, the worker typically bears the burden of paying advance tax directly rather than having TDS withheld.
2. Can a remote worker in India be taxed twice on the same salary?It's possible if residency and DTAA relief aren't applied correctly. India has DTAAs with most major partner countries, including Portugal, Israel, Lithuania, and Poland, which allow a Foreign Tax Credit via Form 67 against tax already paid abroad, preventing the same income from being taxed fully in both jurisdictions.
3. Does hiring a remote worker in India create Permanent Establishment risk for a foreign company?It can. PE risk arises when the remote worker habitually concludes contracts, maintains a fixed place of business such as a home office used predominantly for company work, or acts as a dependent agent. A confirmed PE exposes the foreign company to 35% corporate tax plus a surcharge on India-attributable profits, often assessed retrospectively.
4. Did the 2025 OECD update remove PE risk for remote workers?Not entirely. It does not protect full-time, India-based remote employees working exclusively for a foreign company with no other Indian presence. This is partly because full-time remote work already exceeds the 50% threshold and triggers the "commercial reason" test, and partly because India has formally objected to this framework and does not treat the 50% threshold as determinative in any case.
5. How does an Employer of Record reduce international tax compliance risk?An EOR becomes the registered legal employer in India, which means TDS withholding happens automatically through payroll, PE risk is ring-fenced because the EOR, not the foreign company, holds the India presence, and EPF or SSA classification is determined and filed correctly from the start of employment.
