Navigating Work Visas In India: Best Practices And Common Pitfalls To Avoid

Types of Work Visas in India

India offers several types of visas for foreigners who wish to visit the country for work. Common visa categories include Employment Visa, Business Visa, Project Visa, Journalist Visa, and Film Visa. Expatriates looking to invest and settle in India can also explore obtaining a Permanent Residency Status. However, the focus of this article is on Employment and Business Visas.

The Employment Visa is issued to foreigners who are employed by an Indian company or are on intercompany transfer to India or engaged as independent consultants in India. On the other hand, the Business Visa is issued to those who intend to do business in India, attend meetings, conferences, or explore business opportunities.

Challenges and Pitfalls

1. Working for multiple employers

Expats on an Employment Visa sponsored by an Indian company are not permitted to work for anyone else. Violations of this guideline may result in the expat's blacklisting and future hiring difficulties for the employer. An expat in IT development recently took on freelancing assignments and received payments in his Indian bank account. When he requested a visa renewal, he was required to provide tax returns and Form 26AS, revealing the freelance income and ultimately resulting in the issuance of an exit permit instead of a visa extension.

2. Applying for the wrong visa

In another instance, an independent consultant from the UK was invited by an Indian company to support a project on a fixed consulting fee basis. He was in India for 11 months and applied for a Business Visa. However, he should have applied for an Employment Visa as he was executing a project in India and was also taxable in India on such income. Working without the appropriate visa is a violation of immigration regulation and may result in fines, issuance of exit permit or even a ban from entering the country in the future. Therefore, it is crucial to apply for an appropriate visa category that aligns with the intended purpose of travel and activities in India.

3. Improper classification

By obtaining an employment visa, an expat does not necessarily become an employee of the Indian company. His relationship with the Indian company will always be determined based on the terms of the contract and actual arrangement agreed with the Indian company. In case he is governed by the office regulations, employment policies, control, supervision, and guidance of the Indian entity, we would say that there exists an employer-employee relationship between the expat and the Indian entity, and accordingly, the Indian company would need to carry out all employer-related obligations such as PF compliance and tax withholding on the salary paid to the expat (contract of service). Whereas if the expat is hired as a consultant and works in an independent capacity for the Indian company and is not governed by its control and supervision or employment policies and is hired for his specific skills, he would be regarded as a consultant, and accordingly, no PF or payroll compliances are required (contract for service).

The aforesaid classification is irrespective of visa type, so an expat in India on an intercompany assignment may have inadvertently applied for a business visa and is remunerated in his home country but could be treated as an employee of the Indian entity, whereas an independent consultant supporting an Indian company for a fixed-term project needs to travel on an employment visa but from a compliance standpoint, he may be considered as a consultant.

4. Avoid hiring expats for generic roles

To safeguard the domestic job market, embassies have become more cautious and watchful while issuing visas to expatriates for generic roles where Indian talent is available.  In a recent case, a visa for an expatriate with a high salary was denied since he was being recruited for a generic role in India. When hiring expats for such administrative roles or inviting expats under group transfer, Indian employers must demonstrate the business case for which the expat is being hired / invited.

In a similar case, while assisting an MNC hiring expats with the primary goal of adding native level linguistic expertise from the expats' home country, a justification statement from the management of the Indian MNC was included along with the visa documentation to substantiate that Indians with the required skill set were not available for the jobs being offered to the expats.

5. Minimum salary threshold and payout

One of the primary requirements for foreign nationals seeking an employment visa in India is to meet the minimum salary threshold. The limit is currently set at INR 16.25 lakh or more in annual salary, which includes both monetary and non-monetary compensation. Employers must specifically state compliance with this threshold in the visa documentation of the sponsored foreign national. The remuneration package, including perquisites, should also be expressly outlined in the employment contract.

Additionally, an effort must be made to remunerate the expat locally in India; embassies in Germany and Hong Kong specify this as a prerequisite for visa approval. We anticipate that other embassies too will board the flight sooner or later. This requirement of remunerating expats locally in India will also reduce litigation around salary reimbursement to overseas group entities. The element of cross-charge / reimbursement raises red flags for Indian tax authorities. These payments might be classed as Fee for Technical Service (FTS) under the Income Tax Act. The foreign entity also risks establishing a PE in India. The recent Supreme Court decision in the matter of Northern Operating Systems categorised intercompany arrangements and payroll reimbursement as payments for manpower supply services, rendering them subject to service tax.

Thus, remunerating expats locally in India not only meets the requirement under employment visa guidelines, but it may also prevent litigation around reimbursement of salary to overseas group entities.