Sending someone into India on secondment sounds simple enough they keep their home contract, India gets their expertise for a while, everyone moves on when the assignment wraps up. Then reality sets in. The moment a foreign employee starts working in India, the country's tax and social security rules can start applying to them even if they're never paid a single rupee and never open an Indian bank account.
That's the gap expatriate payroll fills. It's a different discipline from ordinary local payroll and it needs a plan before the assignment starts, not after someone's already three months into it.
Local, split, or shadow-pick the right model first
The first real decision is which payroll management structure the assignment will run on, because it shapes almost everything downstream.
For long-term transfers, companies often just move the employee fully onto the Indian entity's payroll paid in rupees, taxed entirely under Indian rules. That's local payroll and it's really only appropriate once someone has stopped being a "visitor" and become, in effect, an India-based hire.
Split payroll is less common but shows up when someone's role genuinely straddles both sides part of their work still serves the home entity, part serves India. Compensation gets divided between the two payroll systems accordingly, which keeps home-country pension contributions and benefits intact while still covering India's tax obligations on the India-linked portion.
Then there's shadow payroll, which is what most short- and medium-term assignments actually use. The employee keeps getting paid their normal salary from the home country same contract, same currency, same benefits, nothing changes on their end. Separately, a parallel payroll runs in India that never actually pays anyone anything. Its only job is to calculate the Indian tax and social security liability on the portion of income tied to Indian work, then report and remit that to Indian authorities. The Indian payslip in this setup shows zero net pay, because no real money ever moves through it.
Getting this choice wrong isn't a paperwork problem it has real cost. Under-withhold and the company's on the hook for the shortfall plus interest and penalties. Over-withhold and you've frustrated your assignee and added unnecessary equalization costs to clean up later. As a rule of thumb, most mobility teams’ default to shadow payroll for anything under two to three years and only move to local or split payroll once a posting starts looking permanent.
Secondment Structure and Indian Salary-Tax Obligations
Who legally employs the person during the assignment matters as much as how they're paid. If the foreign entity keeps the employment relationship and just deploys the employee to India, tax authorities will scrutinize whether that arrangement creates a permanent establishment risk for the foreign company or whether the Indian entity is actually the "economic employer" and should be withholding tax itself.
This is why secondment agreements need to spell out, clearly, who actually directs the person's day-to-day work, who bears the cost and how any intercompany recharge is structured. Tax authorities look at these facts, not the title on the contract.
Once the structure is settled, the underlying question is fairly simple does the person become an Indian tax resident, and how much of their income falls under India's jurisdiction?
India uses a physical-presence test to answer this. Spend 182 days or more in India in a financial year and you're a tax resident that's been the rule for a long time and stays the primary test even under the new Income Tax Act taking effect in April 2026. There's also a secondary 60-day rule and this is where something has actually changed recently for Indian citizens and persons of Indian origin earning over ₹15 lakh from Indian sources, that threshold moves from 60 days to 120 days starting April 2026. Everyone else stays on the standard 60-day rule. There's also a deemed-residency provision that can catch Indian citizens earning above ₹15 lakh from Indian sources if they're not liable to tax anywhere else mostly relevant for people based in zero-tax jurisdictions.
For genuine foreign nationals who stay under 182 days, salary for work actually done in India is still taxable in India, regardless of where it's paid or in what currency. This is the entire reason shadow payroll exists "we paid them from abroad" doesn't exempt income once the underlying work happened on Indian soil. It's worth checking the relevant DTAA between India and the employee's home country too, since short-stay exemptions can wipe out the Indian liability completely for very brief assignments, typically where someone's in India under 183 days, the cost isn't recharged to an Indian entity and a non-resident employer both pays and bears the salary.
One thing that often gets missed employees returning to India after a long stretch abroad may qualify for RNOR status for up to three years, where only their Indian-sourced income gets taxed and their foreign income and assets stay outside India's net. Worth flagging for repatriating staff, not just inbound assignees.
Social security, benefits and the reconciliation
Provident fund rules apply to "international workers" a category that covers most foreign nationals working for an Indian establishment unless their home country has a Social Security Agreement with India and they hold a valid Certificate of Coverage. India has SSAs with a fair number of countries, including Belgium, Germany, Switzerland, France, Japan and South Korea, among others. Where an SSA and certificate apply, the person can stay entirely on their home social security system and skip Indian PF contributions for the agreed period.
Where no SSA exists, PF applies to the full salary without the wage ceiling that caps contributions for local employees. That can make the actual employer cost noticeably higher than budgeted if nobody accounts for it in advance.
A handful of other things tend to trip people up
Benefits paid outside India- housing, school fees, home leave flights, pension contributions kept in the home country all need to be checked for Indian taxability individually. Perquisites tied to employment are generally taxable in India if the employee is tax resident or if the benefit relates to their Indian service, even when everything is arranged and paid entirely abroad.
Exchange rates- aren't a matter of picking whatever rate looks convenient. Foreign-currency salary and benefits get converted to rupees using the State Bank of India's telegraphic transfer buying rate from the last day of the month before the payment month, per Rule 26 of the Income Tax Rules. Using an inconsistent rate is one of the more common shadow-payroll mistakes and it tends to surface as a mismatch during reconciliation.
Tax equalisation- adds another layer for companies that use it: a hypothetical home-country tax gets calculated and deducted from the employee's pay, and the actual India and home-country liabilities get settled separately, so the assignee ends up no better or worse off than if they'd just stayed home. That requires the shadow payroll numbers, the actual filings and any year-end true-ups to line up.
And because shadow payroll never actually pays anyone, someone still has to reconcile it comparing the notional monthly tax calculation against what's eventually reported and paid and against the home-country payroll records, so nothing gets double-counted or dropped when the assignment ends.
One more thing worth knowing under the Liberalized Remittance Scheme, the Tax Collected at Source threshold for outward remittances was raised to ₹10 lakh, which eases the cash-flow hit for assignees sending money home for things like education or medical costs.
Wrapping up the assignment
The departure process deserves the same care as onboarding. That usually means a final Indian tax computation and Form 16 for the period on Indian payroll, sorting out whether the PF account closes or continues depending on SSA coverage, a final tax equalisation settlement if one applies and confirming the exit date for residency-day counting the following year a mid-year departure can still leave a filing obligation in India even after someone's physically gone. A tax clearance certificate is also worth checking, particularly for foreign nationals leaving India, since immigration and tax exit processes are sometimes linked.
Expat and shadow payroll management are a genuinely specialised part of India payroll work, and it's much easier to set up correctly at the start than to fix after the fact. The payroll model should follow from how long and how the assignment is structured. Residency needs to be checked against both the 182-day rule and the newer 120-day and deemed-residency provisions. Social security exposure needs to be checked against India's SSA network before assuming PF automatically applies. And the exchange-rate and reconciliation process need to be a monthly habit, not a year-end scramble. Given how many pieces are moving at once home payroll, shadow payroll, equalisation, social security it's usually worth bringing in an India tax or global mobility specialist before the assignee's start date rather than after something's already gone wrong.