What Is the Permanent Establishment Risk for Indian Freelancers Working with Foreign Firms?

A permanent establishment is a taxable presence of a business in another country. Article 5(1) of the India-US tax treaty defines it as "a fixed place of business through which the business of an enterprise is wholly or partly carried on", and Article 5(4) extends it to some agents. For freelancers, the risk runs in two directions.

• Client in India: A foreign client can be treated as carrying on business in India through an Indian freelancer who acts as its dependent agent. Indian law calls this a business connection under section 9(9) of the Income-tax Act, 2025.
• You abroad: An Indian freelancer can become taxable in the client's country through a fixed base there or a long stay. Under Article 15 of the India-US treaty, either condition lets the US tax income from services performed in the US.
• Indian definition: Section 173(c) of the 2025 Act says a permanent establishment includes a fixed place of business through which the business of the enterprise is wholly or partly carried on.
• Treaty priority: Where India has a treaty with the client's country, section 159(4) of the 2025 Act applies the Act only to the extent it is more beneficial to the taxpayer covered by the treaty.
• Which Act: The 1961 Act was repealed from 1 April 2026 but still governs tax years that began before that date, as the Income Tax Department FAQ explains.

For the plain definition, see what is permanent establishment. For treaty basics, see what is DTAA and DTAA for Indian exporters. The sections below set out when the risk rises and how to keep records that show how you work.

Permanent establishment risk is highest where a freelancer works mainly for one foreign client and acts for that client in the market, or spends long periods in the client's country. A freelancer delivering work from India to several clients under the freelancer's own name is in a different position. The table compares common arrangements, using the India-US treaty where a treaty test is needed.

A permanent establishment or business connection arises for a foreign client when the Indian freelancer acts as the client's dependent agent in India, or when the client carries on its own business through a fixed place in India. Under section 9(9)(b) of the 2025 Act, the agent tests look at contracts, orders and how far the agent works for one non-resident. Check the steps below for each client.

1. List each foreign client and the share of your work and income that comes from that client.
2. Check whether you conclude contracts in the client's name, or habitually play the principal role leading to them; section 9(9)(b)(i)(A) covers both.
3. Check whether you habitually secure orders in India wholly or mainly for that client, which section 9(9)(b)(i)(C) covers.
4. Check whether you act as an agent working mainly or wholly for one non-resident; section 9(9)(b)(ii) says such an agent is not treated as having an independent status.
5. Check whether the client carries on its own business through a fixed place in India, such as an office.
6. Read the permanent establishment article of the treaty with the client's country, since a treaty test can be narrower than Indian law.
7. Record the outcome and keep contracts, invoices and correspondence that show how the work is done.

No government form certifies that a permanent establishment does not exist. The tests turn on facts, so records showing how, where and for whom you work are what matter. Keep the records in the table for each foreign client, and review them when the scope of work changes.

If a business connection exists, profits from the activity in India can be taxed in India. Under section 9(9)(f) of the 2025 Act, only income reasonably attributable to operations carried out in India is deemed to arise in India from that connection. The foreign client, not the freelancer, owes that tax, though the freelancer's own tax position abroad can also change.

• Client tax: The foreign client may owe Indian income tax on profits attributable to its business connection or permanent establishment in India.
• Profit split: Under Article 7(2) of the India-US treaty, profits are attributed to a permanent establishment as if it were a distinct and independent enterprise dealing at arm's length.
• Your tax abroad: If you meet the fixed base or 90-day test in Article 15, the US may tax your income from US work, and India allows a deduction for that tax under Article 25(2)(a).
• Credit cap: Under Article 25(2)(a), the Indian deduction cannot exceed the Indian tax attributable to the income that may be taxed in the US.
• Company residence: A foreign company whose place of effective management is in India becomes resident in India under section 6(10), which changes how its income is taxed in India.

If an arrangement already looks like a dependent agent, a fixed base or a long stay, change the facts going forward: stop concluding contracts in the client's name, keep your own client base, and track days abroad. For past years, get advice from a chartered accountant and, where needed, a tax adviser in the client's country, since each treaty sets its own tests.

Add up every day of presence in the US within the relevant taxable year. Say a freelancer makes three trips of 30, 35 and 25 days, a total of 90 days. That meets the test in Article 15(1)(b) of the India-US treaty, which applies at 90 days or more, so income for the US work may also be taxed in the US. With trips of 30, 35 and 20 days, the total is 85 days, and that income stays taxable only in India unless a fixed base exists. These numbers are hypothetical. The table sets out the other India-US treaty thresholds.

• One client: Assuming that acting for one foreign client is never a tax issue, when section 9(9)(b)(ii) denies independent status to an agent working mainly or wholly for one non-resident.
• Signing deals: Signing or negotiating contracts in the client's name without checking the dependent agent tests.
• Day counts: Not tracking days spent in the client's country, so the 90-day test in Article 15 is crossed unnoticed.
• One treaty: Applying the India-US thresholds to other countries, when each treaty sets its own tests and periods.
• Wrong Act: Citing 2025 Act sections for tax year 2025-26 or earlier, which the Income Tax Department FAQ says remain under the 1961 Act.
• Foreign company: Setting up a company abroad and making every key decision from India without checking the place of effective management test.

Every rule, deadline and form on this page is linked to its official source, checked on the dates below.

1. The Income-tax Act, 2025 (Gazette of India, No. 30 of 2025), Section 6(10) (company residence, place of effective management); section 9(2)(c) and 9(9)(a) to (f) (business connection, dependent agents, significant economic presence, attribution); section 159(4) and 159(8) (treaty relief, more beneficial provisions, certificate of residence); section 173(c) (permanent establishment) (checked 9 Oct 2026)
2. Convention between the United States of America and India (income tax treaty), Article 5 (Permanent Establishment) paragraphs 1, 2(k), 2(l), 4 and 5; Article 7(1) and 7(2) (Business Profits); Article 15 (Independent Personal Services); Article 16(2) (Dependent Personal Services); Article 25(2)(a) (Relief from Double Taxation) (checked 9 Oct 2026)
3. Income Tax Department: Objective and scope of the New Act FAQ, Repeal of the 1961 Act from 1 April 2026; tax year concept; 1961 Act continues to govern tax years beginning before 1 April 2026 (checked 9 Oct 2026)
4. IRS: Nonresident aliens, source of income, Summary of source rules: business income from personal services is sourced where services are performed (checked 9 Oct 2026)