H-1B Visa Delays Unravel Tax and Compliance Nightmares for Indian Nationals
For over three decades, the H-1B visa program has served as a vital economic bridge between India and the United States, facilitating the movement of highly skilled professionals into sectors crucial to US productivity and innovation. Indian nationals constitute more than 70% of all H-1B visas issued globally, positioning India as the largest beneficiary of this program. This arrangement has yielded substantial benefits for both US employers and Indian workers, fostering a symbiotic relationship that drives technological advancement and economic growth.
From Predictability to Prolonged Uncertainty
What was once a relatively predictable process has, in the past year, transformed into a source of prolonged uncertainty and anxiety for Indian nationals. Extended visa stamping delays at US consulates across India have left thousands of H-1B holders stranded outside the United States for far longer than anticipated. While the immigration consequences of these delays are widely discussed, the more intricate and enduring implications lie in personal and corporate taxation, social security, and payroll risks, necessitating careful consideration.
What Has Changed in Visa Processing?
Appointment availability at US consulates in Indian cities has dramatically tightened. Applicants have seen their scheduled interview dates pushed into late 2026 and 2027 due to backlogs and rescheduling. Visa stamping via third countries is also being discouraged. This situation reflects a convergence of factors, including post-pandemic demand recovery, surging application volumes, staffing constraints at diplomatic missions, annual lottery caps, requests for evidence, expanded security screening for employment-based visas, and reduced eligibility for interview-waiver processing.
Furthermore, the US Department of State has announced that, effective December 15, 2025, all H-1B and H-4 applicants will undergo expanded online-presence and social-media vetting. Applicants are required to make their social-media profiles public, and consular officers may review publicly available posts, professional histories, connections, and any inconsistencies between online content and visa applications. The Department has explicitly stated that adjudication will rely on all available information, increasing review times, raising the likelihood of administrative processing, and heightening the risk of follow-up interviews or document requests. For applicants who traveled expecting short stays for routine compliance, this has evolved into an open-ended disruption with increasingly unpredictable return timelines.
When Immigration Delays Trigger Tax Events
Stranded professionals often continue working remotely from India for their US employers, assuming their tax position remains unchanged because employment contracts, payroll, and reporting lines remain in the US. This assumption may hold for short, well-contained periods. However, as delays stretch into months or even over a year, significant tax exposures emerge.
Under India's income-tax laws, salary accrues in India for services rendered in or from India, regardless of where the employer is located or where remuneration is paid. Consequently, salary attributable to days worked remotely from India may be treated as India-sourced income, even if paid into a US bank account by a US employer.
The India–US Double Taxation Avoidance Agreement offers potential relief. Article 16 provides a short-stay exemption, under which employment income remains taxable solely in the country of residence if all the following conditions are met cumulatively:
- The individual is a Tax Resident of the US, evidenced by a Tax Residency Certificate issued by US federal revenue authorities.
- The individual does not exceed 183 days of presence in India during an India fiscal year.
- The remuneration is paid by a non-Indian employer and is not borne by or attributable to a permanent establishment in India.
If the 183-day threshold is breached, coupled with a history of stay patterns in India, Resident and Ordinarily Resident status may be triggered, leading to larger ramifications, including worldwide income taxation in India. Treaty relief mechanisms become more complex and administratively burdensome in such scenarios.
US Tax Consequences and Double Taxation
From a US perspective, many H-1B holders remain US Tax residents under the substantial presence test despite prolonged physical absence, particularly when the absence is involuntary and the intent to return to the US is clear. As a result, US federal tax on worldwide income continues, and payroll withholding often remains unchanged. State tax residency may also persist depending on domicile and individual state rules.
This creates a dual exposure scenario: Indian taxation based on source or residency, alongside US taxation based on residence. Although foreign tax credits are available in the US to mitigate double taxation, mismatches in tax years and timing of tax payments can lead to cash-flow strain and interim double taxation.
Employer Payroll and Corporate Tax Implications
The consequences extend beyond individual employees. From a payroll perspective, if an employee remains in India for fewer than 183 days and the treaty exemption applies, India tax withholding may not be required, but the employer must document the treaty position. Once presence exceeds this threshold, Indian tax withholding obligations arise, often necessitating shadow payroll registration and compliance.
If payroll continues only in the United States without Indian reporting, employers may face audits by tax authorities, even if employees have paid necessary taxes directly through advance tax or tax return filings.
Prolonged presence of employees in India—especially those in strategic roles such as business development, contract negotiations, client engagement, or revenue generation—may trigger questions around permanent establishment risk exposure. Authorities may examine the aggregate presence of employees, the nature of their responsibilities, and whether a fixed place of business exists in substance.
Social Security Complexity
Social security adds another layer of complexity. There is no comprehensive India-US social security totalization agreement. FICA withholding continues in the US, while Indian provident fund obligations may arise if the US entity has twenty or more employees stranded in India at any point in time. Dual contribution risk, though often impractical to resolve, becomes a real consideration in extended delay scenarios.
Risk Overview
- Individual Tax: Indian tax residency and worldwide income exposure. Watch out for tracking days of presence versus thresholds and applying treaty relief if possible.
- Payroll: Local withholding obligations. Evaluate shadow payroll or secondment options.
- Corporate PE: Permanent establishment exposure and income attribution to India. Monitor roles and responsibilities and consider secondment structures.
- Social Security: Dual contribution risks. Track entity-wise employees' presence.
- US Tax Credit: Potential double taxation. Claim foreign tax credits in the US.
Compliance Challenges Created by Delays
What distinguishes the current H-1B backlog from traditional mobility is that risk exposure arises without intent. Employees did not elect to relocate their work location, and employers did not redesign secondment models. Yet both are required to navigate tax, payroll, social security, and corporate tax frameworks that assume advance planning and conscious structuring.
As expanded vetting under Department of State rules comes into effect from December 2025, the likelihood of longer consular processing times increases. This, in turn, raises the probability that temporary travel turns into extended remote work, with cascading tax consequences across jurisdictions.
Looking Ahead
As H-1B delays persist, the issue warrants attention beyond immigration policy alone. During the COVID-19 pandemic, similar unprecedented delays caused comparable tax complexities. The Indian government provided a limited window to apply for not considering additional stay in India beyond an individual's control when determining tax residential status.
The artificial barriers being created to obstruct talent fungibility might impact US companies' reliance on Indian talent—or could lead businesses to begin moving towards talent-rich geographies like India. The evolving landscape underscores the need for proactive planning and cross-border compliance strategies to mitigate risks for both professionals and employers.
