Compliance & labour law · Updated October 2026
A secondment is a temporary assignment in which an employee of one company works for another company, usually a group entity, under the host’s day-to-day direction, and returns to the original employer at the end. It looks like deputation, but the test that matters for tax and labour law is who controls the work and who is the employer in substance during the assignment.
No statute defines either word, and companies use them interchangeably. The practical split looks like this:
| Question | Typical deputation | Typical secondment |
|---|---|---|
| Who directs daily work? | Sending employer, often through a project lead | Host company |
| Whose payroll? | Sending employer | Home payroll with recharge, split payroll or host payroll |
| Who can end the assignment? | Sending employer | Usually the host, with recall rights for the home company |
| Main risk | Service PE for the sender if abroad | GST on the recharge and withholding tax disputes |
GST. In Northern Operating Systems (May 2022) the Supreme Court held that an Indian company receiving staff seconded from overseas group entities, who stayed on the foreign payroll while the Indian company reimbursed their cost, was receiving a taxable manpower supply service. CBIC then issued Instruction No. 05/2023-GST (13 December 2023) warning officers against applying the judgment mechanically, and Circular 210/4/2024-GST (26 June 2024), under which a related-party import of services can be valued at nil where the Indian recipient is eligible for full input tax credit and no invoice is raised. The Delhi High Court (October 2024) and the Karnataka High Court (2025) relied on that clarification to quash secondment demands.
Withholding tax and PE. In Centrica (2014) the Delhi High Court treated salary reimbursements to an overseas entity as fees for technical services, attracting withholding tax. Earlier, in Morgan Stanley (2007), the Supreme Court indicated that staff who stay on a foreign company’s payroll and keep a lien on that job can create a service permanent establishment in India. For FY 2025-26, payments to non-residents fall under section 195 of the 1961 Act; from tax year 2026-27 that moves to section 393 of the Income-tax Act, 2025.
Payroll. If the secondee works in India, Indian salary TDS is generally needed whoever pays. A foreign national may also count as an international worker for EPF, unless a social security agreement exempts them.
Not automatically. Courts and tax officers read the documents as a whole, along with who supervises and who can terminate, so the appointment letter and the secondment agreement must tell the same story.
Possibly, because related entities with separate GST registrations are treated as distinct persons. Check whether the recharge is a GST supply and whether the receiver gets full credit, and route payroll through your payroll provider on the correct entity.
A mark-up points towards a service rather than pure cost reimbursement, as in Northern Operating Systems, yet transfer pricing may require one. Settle this with your tax team first.
Where the person at the host was never on any group payroll, the question is a different one, covered under independent contractor vs employee.