Quick Take
- The Secondment Tax Ruling holds EY US salary reimbursements taxable as FTS in India.
- Judgment dated June 18, 2026 set aside earlier ITAT relief and revived the tax demand.
- MNCs, GCCs and Big4 firms may now face higher costs and fresh withholding tax exposure.
In This Article
The Secondment Tax Ruling from the Delhi High Court holds that salary reimbursements paid by EY India to Ernst & Young U.S. LLP for seconded employees are taxable in India as Fees for Technical Services (FTS). The judgment was delivered on June 18, 2026.
The Secondment Tax Ruling came in ITA 423/2025, where the tax department challenged earlier relief granted by the Income Tax Appellate Tribunal (ITAT). The Court set aside the ITAT order and held that the payments fall under Section 9(1)(vii) of the Income Tax Act, 1961 and Article 12 of the India-US Double Taxation Avoidance Agreement (DTAA). The order is available on the Delhi High Court website.
StartupFeed Insight
The hidden cost in this Secondment Tax Ruling is not the tax alone, it is the uncertainty. The Court has signalled that a no-markup recharge does not automatically escape tax, and that the real test is the substance of the arrangement. Tax heads at every global capability centre (GCC) and Big4 firm should be watching, because revenue officers chasing targets now have a fresh High Court benchmark to cite. StartupFeed expects a wave of reassessment notices on secondment structures through FY27, and a likely Supreme Court appeal by EY US within the next few months. Documentation, not intent, will decide who pays. By StartupFeed Desk.
What the Secondment Tax Ruling decided
The Secondment Tax Ruling classifies cross-border salary reimbursements for deputed staff as taxable technical service fees. The Delhi High Court reached this view after examining the deputation agreements between EY US and the EY India member firms.
The Court found that EY US kept a lien on its seconded employees and that these employees made technical knowledge and skill available to the Indian entities. This satisfied the “make available” condition under Article 12(4)(b) of the India-US DTAA, per the judgment summary.
| Metric | Detail | Notes |
|---|---|---|
| Case number | ITA 423/2025 | CIT (International Taxation)-1 vs EY US LLP |
| Judgment date | June 18, 2026 | Delhi High Court |
| Outcome | ITAT order set aside | Tax demand revived |
| Legal basis | Section 9(1)(vii); Article 12 DTAA | Income Tax Act, 1961 |
| Key precedent | Centrica India Offshore (2014) | Relied upon by the Court |
| Disputed amount (illustrative) | Rs 18.3 Cr reimbursement | From a prior EY US assessment year (taxguru filing) |
The most striking point in this Secondment Tax Ruling is the reversal itself. Earlier ITAT benches had repeatedly held such reimbursements non-taxable, so this High Court view changes the settled comfort that many tax teams relied on.
About Ernst & Young U.S. LLP
Ernst & Young U.S. LLP (EY US) is the United States member firm of the global EY network, which provides assurance, tax, transaction and advisory services. EY operates as a partnership of member firms, with EY India running separate local entities. As part of routine practice, EY US deputes skilled professionals to EY India to support engagements and transfer expertise across borders.
Why did the Court treat this as FTS?
The Court treated the payments as FTS because the seconded staff transferred technical skill while EY US retained employment control. This is the core of the “make available” test under the treaty.
“A mere recharge of costs, even on a no-markup basis, does not automatically qualify as a reimbursement, and the real test lies in examining the underlying arrangement,” said chartered accountant Ashish Karundia, as reported in the news coverage.
EY US had argued that EY India already deducted tax deducted at source (TDS) on the salary paid to secondees. The department countered that the intrinsic nature of the service was technical, so a separate withholding under Section 195 was due before paying the overseas entity.
What does this mean for MNCs and GCCs?
For MNCs and GCCs, the Secondment Tax Ruling raises the cost and complexity of moving foreign talent into India. Deputation has become a standard tool, so the exposure is broad.
Tax officers may now reopen past secondment cases and demand extra withholding on reimbursements paid to overseas entities. Companies could also face reverse-charge GST liability in the hands of the Indian entity, adding a second layer of cost on top of income tax.
How do other secondment rulings compare?
Secondment taxation in India has swung between conflicting rulings, which is why this judgment matters. Different courts have read similar facts in opposite ways.
| Case | Forum | View on reimbursement |
|---|---|---|
| EY US (2026) | Delhi High Court | Taxable as FTS |
| Centrica India (2014) | Delhi High Court | Taxable as FTS |
| Flipkart / Karnataka (2025) | Karnataka High Court | Not taxable under US treaty |
What sets this Secondment Tax Ruling apart is its timing and reach. It revives the Centrica logic at a moment when GCCs and Big4 firms have scaled deputation heavily, widening the pool of arrangements now at risk.
What’s Next
EY US is widely expected to appeal to the Supreme Court, which could take up the matter in the coming months. Until then, tax officers may use this verdict as a benchmark to reopen secondment cases. Companies will likely revisit deputation contracts to reduce exposure under both income tax and reverse-charge goods and services tax (GST). Will the Supreme Court finally settle the secondment question once and for all?
Frequently Asked Questions
Last updated: June 20, 2026 at 07:45 IST
Disclaimer: This article is for informational purposes only and does not constitute investment advice. StartupFeed and its authors are not SEBI-registered investment advisors. The analysis above is based on publicly available information and should not be the sole basis for any investment decision. Please consult a SEBI-registered financial advisor before making investment decisions.
Written by Avinash. Published: June 20, 2026. Updated: June 20, 2026. Have a tip? Write to us at editorial@startupfeed.in.
