As part of the BRIC group of economically powerful nations (Brazil, Russia, India, and China), India can be an excellent destination for international contractors, especially those skilled in IT and finance. When you consider the potential compensation levels with the low cost of living and the rich cultural heritage, India can turn out to be a satisfying and lucrative choice if you find the right situation.
This guide will cover the basic steps for getting started with contracting in India. It will also give an overview of the tax residency criteria, how to obtain the right work permit and the best way to get paid.
How do I get paid as a contractor in India?
The first thing to think about is how you are going to contract and get paid in India. It is one thing to contract remotely from your home country, but it’s far more challenging to relocate and work in-country as a contractor/self-employed. Once you have secured your client contract and taken care of logistics, the financial and payment challenges remain.
There are a few options for getting paid in India. This choice will depend on your experience contracting abroad and the preference of your Indian client. Employment law in India also regulates the hiring of contractors, so that may be quite different from your previous experience in other countries. For example, only companies in India with a special license as a ‘principal employer’ can hire contractors.
No matter which of these options you choose, your Indian client will need to withhold taxes just as if you were an employee, which means having a Permanent Account Number (PAN). Contracts may be limited to 240 days, after which you might be deemed an employee.
Contract as Your Own Foreign Limited Company
It may appear easiest to just use your existing foreign limited company to contract with your Indian clients. This is legal if the correct process is followed. However, many Indian businesses are reluctant to hire contractors if their limited company is registered abroad.
The reason for this is that under Indian law, non-compliance by the contractor can also be imputed to the Indian client/company, who could end up blacklisted from hiring foreigners in the future. You would have to demonstrate to your client that you are familiar with how to comply with all self-employment and business regulations to overcome any resistance. This is probably only practical for short-term projects, and experienced contractors.
Set Up Your Own Indian Limited Company as Self-Employed
Another option is to set up yourself in India as a registered self-employed. This will be similar to establishing a business in most countries, with required registration, fees and criteria. Due to the complex Indian bureaucracy and need for professional assistance, it may only be suitable for a contractor planning to work long-term in India.
Use an Indian Umbrella Company
Given the complications with the other methods, savvy contractors will avoid those problems altogether and use an Indian umbrella company. The umbrella company takes care of all the administrative work associated with your contract and acts as an intermediary between you and your Indian clients.
This helps reduce uncertainty for both the contractor and client. This is because the umbrella company will make sure that you comply while making all the correct withholding and contributions. Even with the support of an umbrella company, you will still manage all of your work methods and deliverables. This is a good option for those new to contracting in India or in general.
What visas do I need as a contractor in Ind?
You will need to obtain an Indian work visa, which must be sponsored by an approved ‘employer’. Even if your client agrees to sponsor you, when you change clients you will also need a new visa. This is one area where using an umbrella company can be so helpful, as they can act as your visa sponsor, and you can change or add clients as often as you wish.
An umbrella company in India will need to have a license and approval as a sponsor. Then, they will take care of all the paperwork for you. Otherwise, you will have to rely on your clients’ goodwill to sponsor you or attempt it DIY as a domestic limited company.
How to File Taxes in India
Tax rates in India range from 0-30% depending on income level after deductions. There are no special tax rates for ex-pat contractors. The filing deadline is July 31st.
Tax Year: 1 April – 30 March
Step 1: Register for e-Filing
Register on the Income Tax Department’s e-filing website here. You will need your PAN. This is a 10-digit alphanumeric number, issued in the form of a laminated card by the Income Tax Department. If you do not have a PAN, you can apply for one here.
Step 2: Log in to e-Filing
Once you have registered for e-Filing, you can sign in here, with your User ID, Password, Date of Birth and Captcha.
Step 3: File Taxes
Go to e-File and click on ‘Prepare and Submit ITR Online’. Select the Income Tax Return Form ITR 1 (for individuals receiving a salary, rent and interest income) or ITR 4S (for individuals receiving business, salary, rent, and interest income) and the Assessment Year. ITR 1 and ITR 4S are the forms available for filing online.
Fill in the details and click Submit. Upload Your Digital Signature Certificate (if applicable).
Step 4: Sign and Submit the ITR-V
Upon submitting successfully, the ITR-V is displayed. Click on the link and download the ITR-V. Print, sign, and submit the ITR-V to the Central Processing Centre (CPC) in Bangalore within 120 days of the date of filing. Check your email/SMS for reminders on non-receipt. You can check whether it has been received by clicking ‘e-Filing Processing Status’ under the ‘My Account’ tab on your e-Filing account.
(If you used a Digital Signature Certificate, there is no need to mail your ITR-V.)
Social Security in India
In addition to taxes, you will have to calculate social security contributions in India, under the Employees’ Provident Fund. The amounts apply to international workers and are currently 12% of salary for both employees and employers. This is typically applied to employees. However, there is a trend toward including contractors in social security benefits when they work for their clients.
If you (and your client) prefer to avoid EPF contributions, that may be possible if India has a social security totalization agreement with your home country. You just have to show that you are paying into that home fund, and you can get an exception or an offset. If you use an umbrella company, they can assist with determining whether contributions are required.
Tax Residency in India
Depending on your length of stay, you might become an Indian tax resident. The tax status that most likely would apply to contractors is the Resident and Ordinarily Resident (ROR). This applies when:
- You are working in India for 182 days or more in the tax year; or
- You are present in India for 60 days or more in the current tax year, and 365 days or more in the preceding four years
If you meet the ROR criteria, you are taxed on your worldwide income, not just Indian-sourced income. In that case, you would need to look to a tax treaty between India and your home country to avoid double taxation.
How Contractor Taxation Helps with Contracting in India
Contractor Taxation has a network of umbrella companies in India. We can connect you with the tax, immigration and residency specialists that you will need to comply with. Trying a DIY approach in India will mean the time and expense of hiring experts to help you. Even then, you may not be sure that you are meeting all the requirements or maximizing your net earnings.
If you allow the umbrella company to handle these tasks, you will be free to focus on your client and workload, with the knowledge that you have a partner who is well versed in helping international contractors in India. Please contact us so that we can get you started and prepared to enter the Indian work culture.
FAQs
Can I work as a contractor in India?
Expats can work as contractors in India under several scenarios. The easiest is to become an employee of your client, and have them sponsor your work visa. You can also legally work through your own limited company, but clients might be reluctant as liability could extend to them if you are non-compliant.
The best option may be to work through an Indian umbrella company, where they lease you out to the client. The client forwards payment to the umbrella company and they issue you a payslip each month.
How are contractors paid in India?
Contractors are paid as either regular employees using PAYE, through their own limited company or by using an umbrella company to facilitate payments. Taxes and social contributions must be withheld even for expats.
What is the role of a contractor in India?
In many cases contractors can fill short term technical roles that are project based. There is also demand for managerial and professional roles in India that could be more long term. In general, a contractor supports the client with specific needs, but it can also lead to something more permanent.
Are contract jobs good in India?
Expats that land contract jobs will find that pay rates are equal to most developing countries, with a very low cost of living. This means a high retention for your earnings. There is ongoing demand for skilled talent, so finding a contract job can lead to other opportunities.
The fact that English is widely spoken is also a plus and can ease the transition for expat contractors.
Is a contract job legal in India?
It is legal, but for expats there must be a way to find a sponsor for a work visa. An independent contractor may find this difficult on their own, and that is where an umbrella company can step in. The umbrella company can sponsor your work visa, withhold taxes and facilitate all payments from your Indian client.
Keep in mind that if you are working as a contractor, your client cannot treat you like an employee. In other words, you must be independent and control your own time and work methods. Don’t accept any benefits and invoice the client regularly.
What is a work contract in Indian law?
Employment contracts can be either fixed term or permanent. Contractors should also have a contract with their client that spells out specific terms and conditions. There is nothing exotic about Indian contract law, but it will pay to have legal review or assistance from an umbrella company familiar with Indian contracts.
Is IT contract work available in India?
Although the Indian educational system has created a lot of domestic technical expertise in India, expats can still find openings. This is especially true if you have experience abroad with major IT companies, and have managerial or project management experience.
What is it like to live and work in India?
India has a reputation as a poor country so are there upscale or modern areas to live?
Although there is poverty in India, there is also a lifestyle available that is equal to any developing country in the West. Here are some examples:
Often referred to as the financial capital of India, Mumbai is known for its upscale neighbourhoods like South Mumbai (Colaba, Cuffe Parade, Malabar Hill) and areas like Bandra and Juhu.
The capital city of Delhi boasts upscale areas such as Lutyens’ Delhi (home to government officials and diplomats), Vasant Vihar, Chanakyapuri, and Golf Links.
As a hub for technology and innovation, Bangalore has upscale localities like Koramangala, Indiranagar, and Whitefield. These areas have a significant expat population, modern amenities, and a vibrant lifestyle.
Can westerners find non-Indian food in restaurants?
Yes of course, but don’t reject Indian food right away as it is delicious! Most international chain restaurants can be found in India, as well as many multi-cuisine eateries. You can also find Japanese sushi bars, Mexican cantinas and Italian pizzerias, so no need to give up your favourite foods.
What is the best city for a young expat IT worker who wants to have an expat community?
Often referred to as the “Silicon Valley of India,” Bangalore is a major tech hub with numerous IT companies and startups. Areas like Koramangala and Indiranagar are popular among young professionals and expats.
Hot Tip: The Toit Brewpub in Koramangala is a well-known microbrewery with a variety of craft beers, Toit is a popular hangout for both expats and locals.
Another prominent IT hub, Pune offers a more relaxed pace of life compared to some larger cities. The city has a growing expat community, a pleasant climate, and a range of IT companies. Koregaon Park is known for its expat-friendly vibe.
Hot Tip: For those looking for cafes, a well-known landmark in Koregaon Park is the German Bakery, a favourite spot for both locals and expats. It’s known for its relaxed ambiance, outdoor seating, and a variety of baked goods.
Are foreigners allowed to visit the many temples in India, or are there restrictions?
Expats can visit many of the temples but must observe dress codes, remove footwear and generally behave respectfully. Some temples may limit non-Hindus to certain areas of a temple and will let you know what is restricted. Spirituality is an important part of Indian life, and visiting temples is often a daily practice for locals, so it is something to be appreciated in the culture.
How much is a one bedroom apartment in Mumbai and Pune?
Mumbai is more expensive with a one bedroom rental ranging from INR 25,000 to 50,000 per month. Pune is cheaper with a range of 15,000-30,000 per month (INR 80 equals 1 USD).
