Why US Companies Are Choosing India Over H-1B Visas in 2026

In September 2025, a US Series B company had four H-1B petitions ready to file for engineers they had already interviewed and wanted badly. Then the $100,000 per-petition fee took effect on 21 September 2025 (USCIS H-1B FAQ 2025), and a $400,000 line item appeared where a manageable one had been — with no guarantee of selection at the end of it.

They called us in November. By February they had eleven engineers in Bengaluru.

This is not an unusual story any more, and it is why India operations for a US company have moved from a cost-arbitrage conversation to a talent-access conversation. The fee did not just make visas expensive. It made the alternative obvious.

The problem the fee created

The H-1B calculation used to be irritating but tractable. Legal fees, filing fees, the lottery, the timeline — annoying, survivable, and worth it for a specific engineer you wanted in your Bay Area office.

At $100,000 per petition, the arithmetic breaks in a particular way. It is not that the number is large; companies spend more than that on a single senior hire. It is that the number is spent before you know whether you get the person. You are paying six figures for a chance in a lottery, per candidate, per year. For a company hiring four or eight engineers a year on visas, this is no longer a line item you can rationalise. It is a strategy that has stopped working.

Which forces the question every US founder in this position now asks: if the engineer cannot come here, what stops us from going there?

What the market did in response

The answer, visibly, is that companies went there. India hosts roughly 1,800 Global Capability Centres generating USD 64.6 billion in revenue and employing 1.9 million professionals (NASSCOM-Zinnov 5-Year Landscape Report 2024). Around 50 new GCCs launched in India in the first half of CY2025 alone, and about 110 in the preceding 24 months (Zinnov India GCC Story 2025). Roughly 65% of GCCs are US-headquartered, and about 70% of new setups since 2020 are US-HQ (Wisemonk India Investment Intelligence 2026).

The capital flow tracks the headcount. US FDI into India reached USD 6.2 billion in H1 FY25-26, more than double the same period a year earlier (DPIIT Quarterly Fact Sheet, September 2025). And the broader trade relationship eased in the same window, with the US–India reciprocal tariff reduced from 25% to 18% in February 2026 (White House Fact Sheet, 6 February 2026).

Note who is doing this. The GCC is no longer a Fortune 500 instrument: 480+ mid-market GCCs with 10–500 employees now account for around 27% of the GCC universe (Zinnov-NASSCOM Mid-market GCC Report 2025). A Series B company with fifteen engineers in Hyderabad is squarely in the mainstream of this pattern, not on its edge.

What you actually gain

Beyond avoiding the fee, four things that founders tell us matter more than they expected:

Talent depth, not just talent cost. India’s engineering pool is deep in exactly the areas mid-market US companies are hiring into — backend and platform engineering, data engineering, ML operations, QA automation, security operations, and increasingly product and design. You are not choosing between a US engineer and a cheaper substitute; you are choosing between one engineer you might get in the lottery and a team you can build deliberately.

Time zone as a feature. India is roughly 9.5 to 12.5 hours from US time zones, which founders initially read as a problem. Teams that structure it well get a genuine follow-the-sun cycle: US day ends with a handoff, India day produces work, US morning starts with progress. The requirement is a real overlap window — usually two to three hours — and a written-first working culture. Both are learnable.

No visa uncertainty in the plan. Your India headcount plan is not subject to a lottery, a fee change, or a policy shift. You can commit to a twelve-month hiring roadmap and expect to execute it.

Retention improves with permanence. Teams built as long-term India operations, with career paths and local leadership, hold together differently than teams built as temporary capacity.

What you have to get right

The failure mode of India entry is almost never the hiring. It is the statutory layer underneath it. Three things determine whether the first year is smooth.

1. The entity-versus-EOR decision

This is the first fork and the one worth thinking about properly. There are two clean ways to employ people in India:

Employer of Record (EOR). A local Indian company becomes the legal employer of your India staff. They are on that company’s payroll, covered by its registrations, and their statutory compliance sits with it. They work on your team, to your direction, day to day. Setup is measured in days, not weeks. It suits market testing and teams under roughly fifteen people.

Your own subsidiary. You incorporate an Indian private limited company, register it for PAN, TAN, GST, provident fund and state professional tax, open a bank account, fund it from the parent, and take on the full statutory calendar yourself. Setup takes six to ten weeks. It suits fifteen or more long-term hires, and it is required if you want direct IP ownership in India, an Indian legal entity for local contracting, or a structure investors can diligence cleanly.

Two clarifications that save US founders time. First, “PEO” in India is not the US co-employment model — that legal structure does not exist here under the November 2025 labour codes. What Indian providers call PEO is functionally EOR: one legal employer, not two. Second, EOR is not a lesser option. The right sequence for many companies is EOR for the first six to twelve months, then transition into their own entity once the team’s shape is settled. That transition is a normal, planned event, not a rescue.

The Asia-Pacific PEO market reflects how ordinary this path has become: USD 8.09 billion in 2024, projected to reach USD 22.97 billion by 2033 at a 12.3% CAGR (Straits Research APAC PEO Report).

2. The compliance calendar, from month one

India runs on a monthly clock. GST returns, TDS deposits, provident fund and ESI contributions, state professional tax — every month, across six different regulators, from your first month of operations. Annual filings with the Registrar of Companies, a mandatory statutory audit from Year 1, the transfer pricing report in Form 3CEB, and the FLA return to the Reserve Bank of India by 15 July sit on top.

The part that surprises founders most: the compliance burden of a ten-person subsidiary is close to identical to that of a hundred-person one. Same filings, same deadlines, less data. There is no light version for a small team.

3. Permanent establishment risk

If your India activities make it look like your US company itself has a taxable presence in India, Indian authorities can seek to tax profits attributable to that presence — at rates applicable to foreign companies. PE risk comes from specific conduct: employees in India with authority to conclude contracts for the US parent, dependent agents acting on the parent’s behalf, or US employees furnishing services in India beyond treaty day thresholds.

For a US company whose India team builds product and runs operations under a documented inter-company agreement, this is manageable and routine. It becomes live when an India-based commercial hire starts closing deals for the parent, or when a US executive relocates for a long project. Worth understanding before either happens rather than after.

In our experience working with foreign companies

In our experience working with foreign companies, the US founders who make this transition well share one habit: they decide the entity-versus-EOR question on headcount trajectory over twenty-four months, not on the two hires in front of them. The ones who struggle optimise for the immediate hire, engage two people as contractors because it is fast, and then spend the following year unwinding misclassification exposure while trying to build a team. Over twenty years we have handled both the EOR route and full entity setup, and the transition between them — and the single most useful hour in an India-entry project is the one spent forecasting headcount honestly before anything is signed.

Where to start

If the H-1B change has pushed India onto your roadmap, the useful first step is not choosing a city or a recruiter. It is deciding how you will employ people — your own entity or an EOR arrangement — because that answer determines your timeline, your compliance obligations and your cost structure for the next two years.

Alacrity works as India Subsidiary Specialists for US and Singapore Founders. We handle both routes and the transition from one to the other, with GST, TDS, ROC, payroll, bookkeeping and transfer pricing bundled under a single retainer and CA and CS sign-off where the law requires it. If you would like to walk through the entity-versus-EOR decision against your actual hiring plan, we are happy to do that in a free consultation.

Frequently asked questions

How quickly can we have our first engineer working in India? Through an Employer of Record arrangement, typically a few weeks once the candidate is identified — the legal employer already has all registrations in place. Through your own entity, six to ten weeks for setup before anyone can be onboarded, driven mainly by apostilled documents from your US parent and bank KYC on your ownership chain.

At what headcount does our own entity make more sense than EOR? As a working rule, around fifteen people — but the sharper test is commitment horizon rather than headcount. If you are confident the India team is permanent and will grow, an entity earlier is usually the better economics. If you are validating whether the model works, EOR keeps the decision reversible.

Can we just hire contractors in India? It is the most common shortcut and the riskiest. If someone works full time to your direction on your systems, Indian authorities may treat them as an employee regardless of the contract, creating retrospective provident fund, ESI and TDS liability. There is also a permanent establishment dimension when the contractor acts for your US parent. Where an entity is not ready, an EOR arrangement gives you the same speed without the exposure.

Which Indian city should we hire in? It depends on the function and the talent pool you need. Bengaluru, Hyderabad, Pune, the Delhi-NCR region and Chennai each have different depth by discipline and different cost and attrition profiles — Hyderabad added 40 new GCCs through October 2025 (Telangana Socio Economic Outlook 2026), for instance. From a compliance standpoint, note that each state you employ in adds its own professional tax registration and rhythm, so a distributed India team is more administratively complex than a concentrated one.

Does having an India team create tax exposure for our US company? Not by itself. A properly structured Indian subsidiary providing services to its parent under an arm’s-length agreement is a separate taxpayer, and the parent is not taxed in India merely because the subsidiary exists. Exposure arises from specific conduct — India-based staff concluding contracts for the parent, or parent employees furnishing services in India beyond treaty thresholds. It is worth a structured review before you make your first India-based commercial hire.

Alacrity Corporate Solutions Pvt. Ltd. is a CA and CS certified professional services firm based in Gurgaon, Delhi-NCR, with 20+ years of practitioner experience. This article is informational and does not constitute tax or legal advice for any specific situation.