Contracting in India: A Guide for International Contractors
As part of the BRIC group of economically powerful nations (Brazil, Russia, India, 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 as a contractor in India, and also give you an overview of the tax residency criteria, how to obtain the right work permit and the best way to get paid.
Options for Getting Paid 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.
You do have a few options for getting paid in India, and your choice may 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 in duration, 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. While it is legal if the correct process is followed, the reality is that many Indian businesses are reluctant to hire contractors if their limited company is registered abroad.
The reason for this is that under Indian law, and 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 first two 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, as the umbrella company will make sure that you are in compliance while making all the correct withholding and contributions. It is similar to having an Indian ‘employer’, although you will still manage all of your own work methods and deliverables. This is a good option for those new to India or contracting in general.
Do You Need a Visa to Work in India?
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, and 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 expat 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 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. Although this is typically applied to employees, 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 Contractors in India
Contractor Taxation has a network of umbrella companies in India, and we can connect you with the tax, immigration and residency specialists that you will need to be in compliance. Trying a DIY approach in India will mean the time and expense of hiring experts to help you, and 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.