EOR vs Subsidiary in India: At What Headcount Does Your Own Entity Become Cheaper?

An EOR stays cheaper than your own Indian company for fewer hires than most EOR vendors suggest. On cash alone, a subsidiary overtakes the EOR at about 4 to 7 employees when you pay a mid-market fee of $299 to $399 a month. At a low India-specialist fee of $199, the crossover sits nearer 9 to 12.

That is the short answer to EOR vs subsidiary in India. The long answer turns on four numbers only you know.

Your EOR fee. Your average salary. How lean you can run an Indian company. And how long you plan to stay.

This guide prices every line for 2026. It uses the 15.5% safe harbour margin from the Union Budget 2026-27, the four labour codes in force since 21 November 2025 and the resident director rule in the Companies Act, 2013. Then it hands you the formula, so you can test your own numbers.

What is the Difference Between an EOR And A Subsidiary in India?

An EOR employs your India team on its own Indian entity, while a subsidiary is your own Indian company that employs them directly. You direct the work in both cases; the only difference is whose name appears on the contract, the payroll registrations, and the legal liability.

A wholly owned subsidiary in India is almost always a private limited company. Your foreign parent holds all of its shares. So the choice between an employer of record and your own entity really comes down to who carries the employer’s obligations in India.

Who Is The Legal Employer Under Each Model?

Under an EOR, the EOR is the legal employer; under the entity route, your subsidiary is the legal employer. The EOR registers with EPFO and ESIC, withholds tax and files the returns. With a subsidiary, every one of those registrations sits in your company’s name.

What Can A Subsidiary Do That an EOR Cannot?

A subsidiary can sign contracts, invoice Indian customers, lease property, open bank accounts and hold IP in India. An EOR can do none of that for you.

The EOR employs people. It does not give your company a commercial presence.

Suppose you plan to sell to Indian enterprises. You need an entity from day one, whatever the headcount.

How Much Does an EOR Cost In India In 2026?

An EOR in India costs roughly $99 to $699 per employee per month in 2026, plus salary and statutory contributions. India-specialist providers cluster at the lower end, while global platforms usually charge $499 to $699 a month for exactly the same hire in exactly the same city.

Some providers bill a percentage of salary instead, commonly 5% to 15%. That looks cheap on a junior hire and expensive on a senior one. Our India EOR cost guide compares the pricing models in detail.

So your employer of record India cost is the fee, plus salary, plus statutory costs, plus whatever sits outside the fee.

What Does The Monthly EOR Fee Cover?

The fee covers contracts, payroll, tax withholding, statutory filings and HR administration under the EOR’s registrations. A good EOR also restructures pay for the labour codes and runs the monthly payroll calendar for you.

Salary, employer PF, gratuity provisioning and any insurance premiums are billed on top of the fee, usually on the same monthly invoice, so read the line items rather than the total.

Which EOR Costs Sit Outside The Headline Fee?

Four costs often sit outside the fee: FX margin, deposits, benefit markups and exit charges. Ask for each in writing before you compare quotes.

• • FX margin: If the EOR converts your dollars to rupees, a 1% to 3% spread on a ₹24 lakh salary adds ₹24,000 to ₹72,000 a year per person.
  • Deposit: Many EORs hold a refundable deposit, often around one month of employment cost. It is cash, not cost, but it ties up working capital.
  • Benefit markups: Group health cover bought through an EOR can carry a margin.
  • Exit and escalation terms: Check how notice periods are billed and how often the fee rises.

Does GST Add 18% To An EOR Invoice?

No, not when your company sits outside India and pays in foreign currency. The EOR’s service then qualifies as an export and is zero-rated. Our note on zero-rated GST for EOR services sets out the conditions.

One old risk has also gone. Tax officers sometimes treated cross-border service providers as intermediaries, which pulled the place of supply back into India. The Finance Act, 2026 omitted Section 13(8)(b) of the IGST Act with effect from 30 March 2026. The place of supply now follows the recipient.

How Much Does It Cost to Set Up and Run a Subsidiary in India?

Setting up a subsidiary in India costs roughly ₹3 lakh to ₹7 lakh (US3,200 to US7,400). It then costs ₹8 lakh to ₹26 lakh (US$ 8,300 to US$ 27,400) a year to keep compliant, before any salary.

Three choices drive that spread. Whether you have a resident director in-house. How much HR you outsource. And how your chartered accountant prices routine filings.

The table below is the full cost of setting up a subsidiary in India for a small team. Treat it as a planning range, not a quote.

Figures in lakh at ₹95 to US$1. Ranges reflect published 2026 practitioner rates for a team of up to about 15.

What Are The One-Time Setup Costs?

One-time costs run ₹3 lakh to ₹7 lakh and cover incorporation, registrations, and legal drafting. You file through SPICe+ on the MCA portal, which bundles name reservation, incorporation, PAN and TAN.

India has no minimum paid-up capital for a private company, so the money you inject is a funding decision rather than a fee.

Timing matters more than the fee. Apostilled parent documents and bank KYC for a foreign-owned company usually decide whether you go live in six weeks or three months. Our step-by-step guide shows how to set up a subsidiary in India.

What Does Annual Compliance Cost?

Annual compliance costs run ₹8 lakh to ₹26 lakh for a small team, and they barely change between 3 and 15 employees. That flat shape is the whole story of the breakeven. EOR cost grows with every hire. Entity overhead mostly doesn’t.

A subsidiary company in India answers to four sets of regulators. The Registrar of Companies wants financial statements and annual returns. The tax department wants TDS returns, an income-tax return, and a transfer pricing report. The RBI wants FDI reporting. And labour authorities want PF, ESI, professional tax and shops-and-establishments compliance, state by state.

Before you commit, run through six things to check before you form a subsidiary.

Why Does Every Subsidiary Need A Resident Director?

Every Indian company needs at least one director who stays in India for 182 days or more in the financial year. That is the rule in Section 149(3) of the Companies Act, 2013. A private company also needs at least two directors in total.

Most foreign parents have nobody who qualifies at the start, so they appoint a nominee director. That is a recurring fee and a governance risk, so contract it carefully.

The cost drops to nil once a senior India hire, such as your country head or first engineering manager, spends enough of the year in India to take the seat.

Which RBI Filings Does A Foreign-Owned Subsidiary Owe?

A foreign-owned subsidiary must report every share allotment to a non-resident in Form FC-GPR within 30 days. It must also file the annual FLA return by 15 July. Both obligations flow from the RBI Master Direction on Foreign Investment in India.

Late filings end up in RBI compounding proceedings, which cost fees, management time and sometimes an awkward conversation with your auditors about why nobody tracked the deadline.

Is Transfer Pricing A Real Cost of Running An Indian Subsidiary?

Only partly. The transfer pricing markup is not a cost to your group, but the tax on it is.

Some calculators book the full 15% to 17% markup as an India cost, as if the money vanished the moment your parent paid the invoice. That overstates the entity route badly.

Here is why. A captive Indian subsidiary bills its parent at cost plus a markup. Cash moves, but it moves between your own pockets. The profit stays in your Indian company.

What actually leaves the group is tax. Hence the right line in your model is the tax gap, not the markup.

What Margin Does India Expect On A Captive Subsidiary?

From tax year 2026-27, India offers a safe harbor margin of 15.5% on operating costs for software, ITeS, KPO and software-related contract R&D. The Union Budget 2026-27 merged these into one category and raised the eligibility threshold from ₹300 crore to ₹2,000 crore. Approval is automated, and the election can run for five years.

You can still benchmark a different margin with a full study. But 15.5% is now the planning number for most small captives. Either way, you need annual documentation and an accountant’s report.

How Much Tax Actually Leaks Out Of The Group?

The leak is the gap between India’s 25.17% corporate rate and your home-country rate on the markup. Withholding tax on dividends adds more if you bring the profit home.

India’s 25.17% comes from the concessional 22% rate plus a 10% surcharge and 4% cess under Section 115BAA. The Income-tax Act, 2025 carries the same regime from 1 April 2026.

Suppose your India cost base is ₹2 crore. A 15.5% markup creates ₹31 lakh of Indian profit and about ₹7.8 lakh of Indian tax.

Your parent deducts that ₹31 lakh at home. At a 21% home rate, it saves about ₹6.5 lakh. So the net leak is about ₹1.3 lakh, or 0.65% of your India cost base. Small, but real.

Repatriating the profit as a dividend and treaty withholding, commonly 5% to 15%, adds to the leak. Hence, our model uses a net drag of 1% of India cost and tests anything from 0% to 2.5%.

Do Statutory Employee Costs Change Between an EOR And A Subsidiary?

No. Employer PF, gratuity, ESI, bonus, and leave rules apply the same way, regardless of who employs your team. They cancel out in a like-for-like comparison, which is why this guide leaves them out of the breakeven.

They still matter for your budget, and our guide to statutory employee benefits in India lists each one with its current rate.

One caution. Some employers pay PF on full basic pay rather than the ₹15,000 wage ceiling. Compare like with like.

What Did The Labour Codes Change On 21 November 2025?

The labour codes redefined wages so that allowances above 50% of total pay count back into wages. They also made fixed-term employees eligible for gratuity after one year instead of five. Both raise the base for PF and gratuity, which means higher provisions for most teams whose pay was built on a low basic and generous allowances.

The Labour Ministry’s 2025 year-end review confirms the one-year gratuity rule for fixed-term staff. The central rules under all four codes were notified on 8 May 2026.

The EPF Scheme, 2026 followed on 29 June 2026. It replaced the 1952 scheme but kept the 12% rate and the ₹15,000 wage ceiling.

States are still notifying their own rules, so compliance varies by location. Our overview of labour laws in India tracks the detail.

Who Carries The Labour-Code Rework Under Each Model?

Under an EOR, the EOR restructures salaries, updates contracts and carries the compliance risk. Under a subsidiary, that work lands on your finance team and your chartered accountant.

It is a one-off project today, but it becomes a recurring one as each state notifies its own rules on its own timetable. Budget for it.

At What Headcount Does A Subsidiary Become Cheaper Than an EOR In India?

A subsidiary becomes cheaper once your annual EOR fees exceed its fixed overhead plus its small per-head costs. With ₹16 lakh in overhead and ₹24 lakh in average salaries, that happens at about 4 employees on a US$ 399 fee. It takes about 6 on US$ 299 and about 9 on US$199.

In year one, setup costs push each figure up by one to three people.

This is the EOR vs entity breakeven that matters for most first India teams.

What Is The Breakeven Formula?

Breakeven headcount equals the entity’s annual fixed overhead divided by the savings per person when you leave the EOR.

N = F × (1 + d) ÷ (E − v − d × S)

• • N is the breakeven headcount.
  • F is the subsidiary’s annual fixed overhead.
  • E is the annual EOR fee per employee.
  • v is the subsidiary’s per-head payroll and HR cost.
  • S is the average annual salary cost per employee.
  • d is the net tax drag from transfer pricing, as a share of India cost.

For year one, add setup cost to F. For a three-year view, spread setup across three years and add any exit cost.

Let’s say you pay US$299 a month. That is ₹3.41 lakh a year per person at ₹95 to the dollar. Take v at ₹30,000, S at ₹24 lakh and d at 1%.

Each employee you move saves ₹2.87 lakh a year. Divide ₹16.16 lakh of overhead by ₹2.87 lakh and you get 5.6 employees.

Breakeven headcount from year two onward, with the year-one figure including setup in brackets. Average salary ₹24 lakh, net tax drag 1%, ₹95 to US$1.

Look at the middle column first. That is where most first India teams sit.

Why Do Published Breakeven Numbers Range From 4 To 50 Employees?

Published numbers differ because each source picks different overhead, fee and tax inputs, and most sources sell one side of the answer. One incorporation firm puts the crossover at four employees, using a US150 EOR fee and about US4,000 in yearly compliance. India-native EOR platforms put it at 25 to 30. Others go as high as 50.

Each can be right for its own inputs. Few of them show you the inputs.

Vendor comparisons tend to overstate entity cost in two ways. They count the transfer pricing markup as a cost. And some add statutory costs to one side only.

Incorporation-firm comparisons tend to understate entity cost in two ways. They leave out the resident director. And they leave out your own team’s time.

Does Salary Level Move The Breakeven?

Salary barely moves the breakeven on a flat fee, but it moves it a lot on a percentage fee. On a flat US$299 fee, the breakeven only shifts from about 5.4 to 6.1 employees as average salary rises from ₹12 lakh to ₹48 lakh.

At a 10% salary fee, the same rise pulls breakeven from about 21 employees down to about 4.

So senior teams on percentage pricing should run the numbers early. Junior teams on percentage pricing can often stay on an EOR far longer.

What Does A Three-Year Comparison Look Like For An 8-Person Team?

For eight employees earning ₹24 lakh each, a subsidiary saves about ₹16 lakh (US16,700) over three years against a US299 EOR fee. Against a US599fee,itsavesabout₹98lakh(US103,100). That gap is the fee.

Both figures exclude salary and statutory costs, which are the same either way.

Subsidiary rows include ₹4.5 lakh setup in year one, ₹16 lakh overhead, ₹2,500 per head per month for payroll and a 1% net tax drag. Exit costs are not included.

What Happens When You Add HQ Oversight Time?

Add ₹10 lakh a year for the time your finance and legal team spends running an Indian company, and the subsidiary loses to a US299EORoverthreeyears.It still beats a US$ 599 fee by about ₹68 lakh.

₹10 lakh a year is roughly what a tenth of a senior finance manager’s time costs in the US or UK, once you count month-end reviews, board papers and calls with your Indian auditor. Most teams forget it.

Hence, the fee you pay decides most of this comparison. Your HQ bandwidth decides the rest.

Which Costs Never Show Up In A Cost Comparison?

Launch delay, exit friction and permanent establishment risk rarely appear in the spreadsheet. Yet each can outweigh a year of fee savings.

How Long Does Each Model Take To Go Live?

An EOR can usually onboard a compliant hire within days to two weeks, whereas a subsidiary typically needs 6 to 10 weeks just to reach its first payroll.

Three to six months is common when apostilled documents, bank KYC or state registrations stall.

Let’s say each engineer adds ₹2 lakh a month of value. A two-month delay on a team of five costs ₹20 lakh of lost output. That is more than a year of mid-level entity overhead.

How Much Does It Cost To Exit Each Model?

Exiting an EOR means serving notice and paying final statutory dues, which you owe under either model. Exiting a subsidiary means closing a company, and that takes far longer.

The fastest route is voluntary strike-off under Section 248, processed centrally by C-PACE. The government told Parliament that C-PACE exits took around 110 days in 2023. But you only qualify once the company has no operations, no liabilities and settled taxes, and getting there takes months.

A solvent company with assets usually goes through voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code. An EAC-PM case study found more than a third of ongoing cases had run beyond two years.

Plan for that before you incorporate for a short pilot. Closing well also protects your people, as our guide to closing a foreign subsidiary without losing talent explains.

Does an EOR Remove Permanent Establishment Risk?

No. An EOR reduces permanent establishment risk, but it does not remove it.

If your India staff habitually negotiate or conclude contracts for the foreign parent, tax authorities can still argue that the parent has a taxable presence in India. The exposure follows what people do, not whose payroll they sit on.

Our guide to avoiding permanent establishment risk in India covers the safeguards. A subsidiary settles the question differently, because it is taxed in India on its own arm’s-length profit.

When Should You Choose An EOR, A Subsidiary, or Both In Sequence?

Choose an EOR while your headcount sits below the breakeven for your fee or your India plan is still unproven. Choose a subsidiary once you pass the breakeven with a commitment of two years or more. Many companies do both, in that order.

When Is An EOR The Better Call?

An EOR is the better call when speed, flexibility or a small team matters more than long-run unit cost. Typical cases look like this.

• • You need a first hire or pilot team working within weeks.
  • Your team sits below the breakeven for your fee and overhead.
  • You might reverse your India plan within 18 months.
  • You hire across several states and do not want to register in each one.
  • Your HQ has no finance or legal bandwidth to run another company.

Startups and small firms most often fit this profile. See our guides to EOR for startups and EOR for small businesses. It also helps to know when an EOR is the wrong fit.

When Should You Incorporate Regardless Of Headcount?

Incorporate at any headcount if you need to invoice Indian customers, sign Indian contracts, lease property, grant ESOPs directly, or hold core IP in India. No fee-saving fixes a missing legal presence.

The same applies if your India team will negotiate deals. Permanent establishment risk grows with every contract they close.

Can You Start On An EOR And Switch To Your Own Entity Later?

Yes. Most companies that enter through an EOR can move staff to their own subsidiary once it is registered. Plan four things before the transfer date.

• Continuity of service: Agree in writing whether prior service counts for gratuity, because fixed-term staff now qualify after one year.
• Provident fund: Balances follow the employee’s UAN, but the new employer must file the joining return correctly.
• Intellectual property: Assign IP created during the EOR period from the EOR to your subsidiary, explicitly.
• Timing: Start incorporation about two months before the move, so bank, PF and ESI registrations are live for the first payroll.

The reverse move happens too. Some companies close a cost-center subsidiary and move staff onto an EOR, as our guide to switching from a subsidiary to an EOR explains. Our notes on keeping employee disruption low during a switch apply in both directions.

Is There A Middle Path Between an EOR And A Subsidiary?

Yes. A build-operate-transfer (BOT) contract lets a partner build and run your India team under its own entity, then hand the whole operation over to you once it is stable and you are ready.

Larger programs can start a GCC through an EOR model and convert later. For those, compare against the full cost of setting up a GCC in India.

And once you own an entity, an international PEO can run HR and payroll inside it. That trims the overhead that drives the breakeven.

Why Do Foreign Companies Use Remunance For Both Routes?

Because Remunance runs EOR, international PEO, and subsidiary formation from Pune, we can recommend the route your numbers support. Our CEO, Ranjana Vaidya, is a Fellow Chartered Accountant, and our team handles the statutory, FEMA and labour-code work behind both models every month.

PLACEHOLDER. First-party data line, for example: “Of the X clients who moved from our EOR to their own subsidiary since 20XX, the median headcount at the switch was Y.” Replace or delete before publishing.

Here is what that looks like in practice.

• • We price your breakeven with your real fee, salaries and cities.
  • You hire through our employer of record services while your company is formed.
  • Our India subsidiary formation team incorporates and registers your entity.
  • We move your people across with service continuity, PF and IP handled.

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