H-1B Workers Stranded in India Create Tax Dilemma for Employers

US businesses risk hefty tax bills as thousands of their H-1B workers remain stranded in India because of months-long visa interview delays, complicating remote work options.

The State Department rescheduled the workers’ visa interview appointments after abruptly imposing extensive new social media screening policies, delaying the US return of people who traveled to India to visit relatives.

Companies will have to mull big tax implications when deciding on options like long-term remote work accommodations for affected workers.

Allowing them to work remotely for an extended period could result in a so-called “permanent taxable entity,” said Parizad Sirwalla, partner and national head of tax at Global Mobility Services at KPMG India.

If stranded workers trigger the creation of a permanent establishment in India, that new entity would have to pay taxes in India and comply with a myriad of reporting requirements.

The tax and reporting obligations that would entail mean employers need to carefully analyze activities that workers can perform while present in the country, Sirwalla said.

Consular offices adopted the screening policies suddenly in mid-December, pushing back pending interview appointments for months—in some cases, as late as 2027. The timing of the policy change was disruptive because it came during the holiday travel season that many H-1B workers use to renew visas. But it’s been especially messy for employees from India, the biggest source of H-1B workers.

The State Department hasn’t shared how many appointments were affected, but in December 2024 nearly 17,000 H-1B visas were issued in Chennai alone. The visa delays have separated many visa holders from family in the US and sidetracked schooling for others’ children.

In the longer term, if stranded workers’ US companies don’t opt to keep them on their payrolls, they would have to find new employers willing to pay a $100,000 fee for new H-1B visa holders.

“It’s a huge increase in the amount of time and personnel resources you’re devoting to this exercise and it’s not clear what benefit there’s going to be for the integrity of the system or safety of the country as a result of a very significant expenditure of government resources,” said Bo Cooper, a partner at Fragomen, Del Rey, Bernsen & Loewy LLP.

Tax Implications

The creation of a permanent establishment can trigger higher tax bills and extensive reporting obligations in India. The tax amount varies according to who holds the visa and what type of work employees perform.

Whether workers’ locations create a PE depends on how significant their contributions are, said Eide Bailly principal Chad Martin.

An early career developer at a big tech firm probably wouldn’t trigger those concerns, he said, but an eight-person AI startup with a chief financial officer stuck overseas would be a bigger problem, he said.

If employees are working on or creating intellectual property or other intangible assets, authorities could also seek to tax a portion of the profits from those.

“When they are stranded or not moved out of their local jurisdiction, the permanent establishment can go all the way to the level of IP,” Martin said.

The US-India income tax treaty dates back to 1989. Tax practitioners have sought guidance on when the Indian tax authority will deem business activities as rising to the level of a permanent establishment, but it remains unclear.

“India is generally assertive in identifying PEs and making corresponding adjustments,” said Clark Armitage, international tax attorney at Caplin & Drysdale. “Any time a US company has employees working for it in India, a PE risk exists and should be evaluated.”

Companies with H-1B workers abroad could argue no PE exists, or choose to terminate or suspend employees to make sure there’s no issue with tax authorities, he said. They can also preemptively assert a PE exists, and then claim a US foreign tax credit—although that would be administratively costly—or have the worker transferred to an Indian subsidiary if one exists.

“Whatever choice the company makes, it likely will want to consult with an Indian adviser about the risks and likely outcomes,” Armitage said.

Lives Disrupted

One H-1B worker who worked in Chicago said he traveled to India in November believing it would be a short trip home. But his consular interview scheduled for late December was rescheduled to June and then canceled entirely.

The worker, who asked not to be identified for fear his status could be affected, has said his position will be terminated if he can’t return by March. Getting a new US sponsor for his H-1B after that would mean finding an employer willing to pay the new $100,000 fee for workers approved through consular processing—a price tag to which few businesses are committing.

“So losing my job in this situation doesn’t just mean unemployment. It can mean the end of my U.S. career—permanently,” he said. “Right now it genuinely feels like everything I built over seven years is collapsing because I took one flight home to see my parents.”

The State Department didn’t say whether it would add more interview appointments.

A spokesperson said the agency regularly shifts resources for appointments as needed, but it’s using all available tools to screen applicants.

Embassies and consulates “are now prioritizing thoroughly vetting each visa case above all else,” the spokesperson said.

Businesses are examining options like unpaid leave for affected employees if remote work isn’t feasible. Each worker could face unique circumstances dictating continued employment options depending on their location, the type of work they do, and what the tax implications may be, said Tiffany Derentz, a former consular officer and partner at the immigration law firm BAL.

“For the most part, companies understand that this was not caused by employees in any way,” she said. “Companies are trying to see what they can do and what accommodations they can make on a temporary basis, given the situation.”

—With assistance from Shefali Anand