Amazon's Remote Work Solution for Stranded H-1B Employees in India Faces Major Tax Hurdles
In a significant move, Amazon has announced that it will permit its H-1B employees who are currently stranded in India to work remotely. This decision comes as a relief to thousands of workers facing indefinite delays in visa processing. However, tax experts are issuing strong warnings that this arrangement could expose US businesses to hefty tax bills and complex compliance requirements.
Thousands of H-1B Workers Trapped in India Due to Visa Processing Delays
The crisis began when numerous H-1B workers traveled to India in November for visa stamping, only to discover that their interview schedules had been unexpectedly deferred to 2026. The situation has worsened significantly, with many applicants who initially had dates in January and February 2026 now receiving notifications that their appointments have been pushed to 2027.
This massive backlog stems from a new social media vetting requirement implemented by the US State Department for all H-1B and H-4 visa applications worldwide. The process, which commenced on December 15, 2025, has particularly impacted Indian consular offices, leading to a drastic reduction in daily appointment availability.
The 'Permanent Taxable Entity' Risk for US Companies
Parizad Sirwalla, partner and national head of tax at Global Mobility Services at KPMG India, has highlighted a critical concern regarding remote work arrangements. She explained to Bloomberg that allowing stranded employees to work remotely for extended periods could potentially create what is known as a "permanent taxable entity" in 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," Sirwalla emphasized. She further cautioned that employers need to meticulously analyze which activities workers can perform while present in the country to avoid triggering these tax obligations.
The Complex Dilemma Facing US Employers
US companies now face a difficult choice between two challenging options. On one hand, maintaining remote work arrangements for stranded employees could establish a permanent establishment in India, subjecting the company to Indian taxation and extensive reporting requirements.
On the other hand, terminating these employees and seeking replacements presents its own financial burden. Companies would need to pay approximately $100,000 in fees for new H-1B visa holders if those employees are not currently in the United States.
Uncertainties in the US-India Tax Treaty Framework
The United States and India have maintained a tax treaty since 1989 designed to prevent double taxation. Under this agreement, a US company typically faces taxation in India only if it maintains a permanent establishment within the country.
However, experts note that the definition of what constitutes a permanent establishment remains ambiguous. The presence of employees working for a US company in India consistently creates what tax professionals describe as "PE risk" – the ongoing possibility that tax authorities might determine a permanent establishment exists.
This situation leaves both employers and employees in a precarious position, balancing employment continuity against potential substantial tax liabilities and compliance challenges.
