This is the risk foreign companies hear about, worry about, and then do nothing about, because it sounds theoretical. It stops being theoretical when the India team starts negotiating with customers, and it is found in diligence rather than by the company itself.
A permanent establishment brings the foreign company into Indian tax on the profits attributable to its India activity, and it can arise without an office, an entity or a registration. Under the India–US treaty, services furnished in India by the enterprise’s personnel for more than 90 days in any 12-month period create a service PE — 30 days where the services are for an associated enterprise — and the days are counted across all personnel together, not per person.
Worried your India team might have crossed a line? WhatsApp us what the team actually does and we will tell you where the exposure sits.
Quick Summary
| Type of PE | What triggers it |
| Fixed place | A place of business in India at the enterprise’s disposal, used for its business |
| Service | Personnel furnishing services in India beyond the treaty day threshold |
| Agency | A dependent person habitually concluding or negotiating contracts for the enterprise |
| Construction | A site or project exceeding the treaty threshold, commonly 183 days |
| India–US treaty, service PE | Threshold |
| General | More than 90 days in any 12-month period |
| Services for an associated enterprise | More than 30 days |
| How days are counted | Aggregated across all personnel, not per individual |
💡 TaxKitab Tip Count the days before you need to. Three engineers in India for 35 days each is 105 days, not 35 — the treaty aggregates personnel, and companies routinely assume the opposite. Keep a simple register of who was in India, for how many days, doing what, for every rolling twelve-month window. It takes a spreadsheet, and it is the single document that answers the question if it is ever asked. Reconstructing it from flight bookings two years later is where the real cost is.
Fixed Place PE
The classic test: a place of business in India at the enterprise’s disposal, through which it carries on business.
The phrase that catches people is “at its disposal.” You do not need to own or lease it. A desk kept available at a customer’s premises, a room in an employee’s home used as the company’s base, or space in an affiliate’s office can qualify if the enterprise effectively has it available and uses it for its own business.
Under the 1961 Act, PE was defined in Section 92F(iiia), with Section 9(1)(i) deeming income to accrue in India through a business connection. The Income-tax Act, 2025 carries the concept forward under Section 9 with expanded drafting on digital nexus and profit attribution.
Service PE — the One That Catches India Teams
This is the test that matters most for a company with people in India.
Under the India–US treaty, Article 5, a service PE arises where the enterprise furnishes services in India through employees or other personnel for more than 90 days within any twelve-month period. Where the services are for a related enterprise, the threshold drops to 30 days.
Three points that are consistently misread:
Days are aggregated across personnel. Not per person. Five people for 20 days each is 100 days.
It is any twelve-month period, not a financial year. The window rolls.
The 30-day threshold bites hardest in exactly the common structure — a US parent whose Indian subsidiary or affiliate receives services from the parent’s people. Visits that feel routine are counted.
Agency PE
Arises where a person in India who is not an independent agent habitually exercises authority to conclude contracts on the enterprise’s behalf.
The substance test matters more than the signature. Habitually negotiating terms in India counts even where the final document is signed abroad — the question is where the contract was effectively settled.
Dependence is the other limb. An Indian party acting predominantly for one foreign principal, with little independent commercial identity, looks like a dependent agent. A genuinely independent distributor or agent with its own customers generally does not.
Significant Economic Presence
Separate from the treaty tests, Indian domestic law has a Significant Economic Presence concept, introduced by the Finance Act 2018 as Explanation 2A to Section 9(1)(i) and notified in 2021, with thresholds of:
- Aggregate payments from Indian transactions exceeding ₹2 crore in a financial year, or
- Systematic and continuous solicitation of business or interaction with 3 lakh or more users in India
Under the Income-tax Act, 2025, SEP sits at Section 9(8)(d) with thresholds in the accompanying rules.
Why it usually does not bite a US company: where a treaty applies and is more beneficial, the treaty prevails — under Section 90(2) of the 1961 Act, now Section 159 of the 2025 Act. SEP therefore matters most for enterprises in non-treaty jurisdictions, or those without a valid Tax Residency Certificate and Form 10F.
An EOR Does Not Shield You
This is the most expensive misunderstanding in the area.
An employer of record solves the employment problem — it makes someone else the lawful employer, with the payroll, PF, ESIC and labour code obligations sitting there. That is genuinely useful, and it is covered in EOR versus subsidiary.
It does not solve the PE problem, because the PE tests look at what the people do and for whose business, not at who runs the payroll. A team that is contractually employed by an EOR but managed by you, working on your product, negotiating with your customers, is doing your business in India.
The same applies to engaging everyone as independent contractors. The label is not the test.
What Reduces the Risk
Keep contract authority outside India. Negotiation and conclusion handled outside India, documented, with the India team genuinely supporting rather than closing.
Define the India entity’s role properly. A subsidiary providing services to the parent at arm’s length, with its own customers being the parent alone, is a recognised and defensible structure — provided the transfer pricing supports it, which is in transfer pricing in practice.
Count the days. Both thresholds, rolling twelve months, all personnel.
Watch what the team actually does rather than what the job description says. PE is a facts test and the facts are emails, calendars and customer conversations.
Get a view early. This is diligence-stage risk — a buyer’s adviser asks, and an unanswered question becomes a price adjustment or an indemnity.
Frequently Asked Questions
Does having an Indian subsidiary create a PE for the parent? Not by itself. A subsidiary is a separate taxpayer. A PE can still arise if the subsidiary’s premises are at the parent’s disposal, or if its people act as the parent’s dependent agent, so the structure protects you only if the conduct matches it.
If we create a PE, what gets taxed? The profits attributable to the PE, not worldwide profits. Attribution is its own analysis and is frequently disputed.
Do remote contractors in India create a PE? They can. If a contractor habitually concludes contracts for you, or works exclusively on your business from a place effectively at your disposal, the label does not protect you.
Does the 90-day rule apply to our Indian employees or only to visitors? The service PE article concerns services furnished through personnel in India for the enterprise. The analysis depends on whose personnel they are and whose business is being carried on — which is why structure and conduct have to match.
Can we get certainty in advance? Advance Pricing Agreements cover transfer pricing rather than PE. For PE, a written opinion from Indian counsel on your actual facts is the practical route.
Does TaxKitab advise on PE? We handle the India-side books, payroll and compliance and will flag what we see. A PE position is a legal and tax opinion on your specific facts — take that from Indian tax counsel, and from your US adviser on the other side.
References
- India–United States Double Taxation Avoidance Agreement, Article 5 (permanent establishment), including the 90-day and 30-day service PE thresholds
- Income-tax Act, 1961 — Section 92F(iiia), Section 9(1)(i) and Explanation 2A (Significant Economic Presence), with thresholds notified by CBDT in 2021
- Income-tax Act, 2025 — Section 9 (business connection and SEP) and Section 159 (treaty relief), effective 1 April 2026
⚠️ PE is determined on the specific facts of each case and the section references under the Income-tax Act, 2025 are new, with secondary sources not yet consistent. Nothing here is an opinion on your own position — take advice from Indian tax counsel before relying on any structure.
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