(INDIA) — H-1B visa stamping delays since December 15, 2025, have stranded thousands of Indian H-1B holders in India, pushing many to keep working remotely and triggering Tax Exposure in both countries while raising concerns for U.S. employers about a possible taxable presence in India.
Interviews have been deferred to 2027, prompting Remote Work from India that can make salary taxable in India for services performed there while the United States continues to tax worldwide income for people who remain U.S. tax residents.
Foreign Tax Credits can mitigate double taxation on income, using U.S. Form 1116 for individuals or Form 1118 for corporations, but the relief does not cover penalties or compliance costs and does not prevent permanent establishment disputes.
Cross-border employment taxation generally follows where the work is physically performed, and India may tax salary attributable to India workdays when services are carried out from India.
U.S. tax can still apply to that same income if the employee remains a U.S. tax resident, creating the risk of double taxation on the same salary.
Extended remote work can also expose the employer to the risk that India treats the U.S. company as having a taxable presence, shifting the issue from an individual filing question into corporate tax, payroll, and compliance concerns.
At the employee level, spending enough time in India can create Indian tax exposure in two ways: the worker may become an Indian tax resident, or the worker may owe Indian tax on salary attributable to services performed in India even if the worker remains a non-resident in some cases.
The Indian residency threshold highlighted in the guidance is 182 days or more in a financial year (April 1–March 31), which makes the employee an Indian tax resident and liable on global income, while shorter stays tax only India-sourced salary.
On the U.S. side, the guidance says H-1B holders typically become U.S. resident aliens via substantial presence, and the United States taxes worldwide income when the person remains a U.S. tax resident, including through substantial presence or a green card.
Employers generally withhold federal income tax like for U.S. citizens for these workers, the guidance says, alongside FICA (Social Security/Medicare) and FUTA on U.S.-performed services equivalent wages, adding another layer of administration when work shifts across borders.
This collision of rules can leave an employee taxed by India because the work happened in India and taxed by the United States because the individual remains a U.S. tax resident.
Foreign Tax Credit relief remains the primary tool described for employees facing double taxation, with individuals typically claiming FTC on their U.S. return using Form 1116 filed with the Internal Revenue Service, while India also allows credits for U.S. taxes under its rules.
“FTC allowed≤US tax on foreign-source income\text{FTC allowed} \le \text{US tax on foreign-source income}FTC allowed≤US tax on foreign-source income”
Excess credit may carry forward and is not immediately refundable, which can matter for workers who face higher Indian tax than U.S. tax in a given year.
Treaty relief also plays a role under the US–India tax treaty, which the guidance says helps determine tax residency through tie-breaker rules, income sourcing, and the method of double-tax relief, generally credit.
Short-stay exemptions “rarely apply when the work is physically performed in India,” the guidance says, limiting how often treaty provisions can remove Indian tax on employment income when the employee actually works from India.
Some U.S. taxpayers abroad use the Foreign Earned Income Exclusion using Form 2555, but the guidance says FTC is often more efficient in India scenarios because Indian effective tax can exceed U.S. tax.
Even where credits and treaty provisions prevent double taxation in the final calculation, the guidance says workers can still feel a squeeze because withholding may occur in both countries while credits are realized at filing time.
That timing leaves cash-flow strain in place even if “the final net tax is neutral,” the guidance says, because the relief comes later than the initial withholding and payments.
For employers, the guidance says double taxation on the employee’s wage is not the central worry, because the larger risk comes from creating a new tax presence that did not exist before remote work began.
Extended remote work can allow India to argue a U.S. company has a Permanent Establishment, a taxable business presence that can trigger Indian tax on business profits, not just on salary, according to the guidance.
Risk factors described include an employee negotiating or concluding contracts, revenue-generating or client-facing roles, habitual presence, and a home office viewed as a place at the employer’s disposal.
The guidance notes that even limited activities require scrutiny because “PE” lacks precise definition.
If a PE is found, the guidance says India can tax business profits, and determining how much profit to attribute can require transfer pricing analysis that may lead to disputes.
Foreign Tax Credit relief exists for employers through Form 1118, which can apply to corporate income tax for employers, but the guidance stresses that the credit does not remove the core risk of a PE determination.
The limits described include that FTC only applies to income taxes, not penalties, interest, or administrative costs, and the credit remains subject to limitation formulas.
The guidance also emphasizes that FTC does not prevent PE creation, leaving the company exposed to registration, reporting, and audit obligations even if some corporate income tax ultimately becomes creditable.
A key complication comes from timing mismatches, the guidance says, where Indian tax may be paid now and U.S. relief comes later, creating cash-flow impact and financial reporting volatility.
Non-creditable costs can accumulate quickly, and the guidance lists penalties and interest, legal and advisory fees, payroll processing costs, and compliance administration costs as costs that are not eligible for FTC.
Those expenses can sit alongside corporate tax compliance obligations described in the guidance, including Indian tax registrations, annual returns, advance tax payments, statutory audits, transfer pricing documentation, and the need for local tax advisors.
Payroll compliance also expands, with Indian payroll setup, tax withholding filings, payroll vendor fees, and reporting forms described as part of the workload.
Legal and HR compliance adds another layer, the guidance says, including local employment law coverage, contract revisions, and benefits or leave obligations, while audit and litigation risk can bring tax audits, appeals, and legal representation.
Companies also face internal administrative burden, with finance, HR, and legal oversight, auditor involvement, and risk management reporting all listed as ongoing tasks.
These compliance costs sit “separate from tax” and “are not offset by FTC,” the guidance says, which is one reason employers view the situation as more than a question of whether the employee can claim a credit at year-end.
The guidance says companies prioritize certainty and risk containment over theoretical net-tax neutrality, because prolonged Remote Work from India can introduce new tax jurisdiction exposure, compliance infrastructure needs, legal uncertainty, and ongoing reporting obligations.
As a result, employer strategies described include limiting the duration of remote work from India, restricting authority such as avoiding contract execution, and placing employees on unpaid leave.
Other approaches include transferring employees to an Indian entity or using an Employer-of-Record model, while “in rare cases” the guidance says companies terminate employment.
Replacing H-1B workers can bring another cost, with the guidance warning that firing or forced unpaid leave can incur $100,000+ in H-1B replacement fees for employers, which can shape how companies respond when workers remain stuck abroad.
The guidance also points to employer concerns extending beyond immediate tax, describing ongoing uncertainty tied to profit attribution disputes when a PE is alleged and the transfer pricing work needed to support positions taken on returns.
Parizad Sirwalla, partner and national head of tax at Global Mobility Services, KPMG India, warned about remote work policy risks, the guidance says, in a reference to attention drawn by Amazon’s remote policy.
Ankita Singh, founder of Sarvaank Associates, also highlighted the employer focus on compliance over immigration, according to the guidance.
For employees, the guidance frames the problem as more than a paperwork exercise, because the interaction of Indian workday taxation and continued U.S. worldwide taxation can produce dual withholding, delayed relief through credits, and month-to-month cash pressure.
For employers, the guidance says the risk profile differs because PE exposure can trigger corporate tax and payroll obligations, along with significant non-creditable compliance costs that credits cannot reimburse.
In that sense, the guidance concludes, H-1B delays can transform an immigration issue into a cross-border tax and compliance event, where Foreign Tax Credits reduce double taxation but “do not prevent the creation of tax presence, legal exposure, or operational burden,” explaining why U.S. companies remain cautious about prolonged remote work from India during visa delays.
H-1B Remote Work from India Triggers Tax Exposure and Employer PE Risk
Visa processing backlogs are transforming immigration delays into a financial burden for H-1B holders and U.S. firms. Remote work from India triggers local tax residency and corporate ‘Permanent Establishment’ risks. Although tax treaties and Foreign Tax Credits offer some relief from double taxation, they fail to address the high costs of compliance, payroll administration, and legal risks associated with cross-border employment.
