MigRizo TeamIn this guide7 sections
Getting paid in dollars from India is normal, legal and increasingly common. The tax side looks complicated from the outside, but it becomes simple once you know which of two situations you are in: independent contractor, or employee through an Employer of Record.
This guide walks through residency, how each situation is taxed, GST for contractors, the certificate you need for every foreign payment, and the dates to keep in your calendar.
Step One: Are You a Tax Resident of India?
Tax residency depends mainly on how many days you spend in India in a financial year, which runs from April to March. If you live and work from India for most of the year, you are almost certainly a resident, and your worldwide income, including USD income, is taxable in India.
Contractor or EOR Employee: How the Tax Differs
| Independent contractor | Employee through an EOR | |
|---|---|---|
| Type of income | Professional or business income | Salary |
| Who deducts tax | You pay it yourself, through advance tax | The employer deducts tax (TDS) each month |
| Expenses | Genuine business expenses can reduce taxable income | Standard deduction for salaried people |
| GST | May apply above the threshold | Does not apply |
| Year end | You file your return with your accounts | You receive Form 16 and file your return |
Many freelancers with moderate turnover can use the presumptive taxation scheme for professionals, which taxes a fixed share of receipts and simplifies bookkeeping. Whether it applies to your kind of work is worth confirming with a chartered accountant.
GST and the Letter of Undertaking
- 1
Check the threshold
If your annual turnover crosses the GST threshold for services (₹20 lakh in most states, lower in a few), you need to register.
- 2
Know your export status
Services you supply to clients abroad and are paid for in foreign currency usually count as an export of services, which is zero-rated.
- 3
File the LUT
File a Letter of Undertaking on the GST portal for each financial year, so you can invoice without charging GST.
- 4
Invoice correctly
Mention the export and the LUT on each invoice, and file your GST returns on time.
FIRC: Your Proof of Foreign Payment
When money arrives from abroad, your bank can issue a Foreign Inward Remittance Certificate (FIRC) or an advice (FIRA). It proves the payment came from outside India in foreign currency, which supports your export position for GST and your records for income tax. Ask for it for every payment and keep them together.
Advance Tax and Filing Dates
By 15 June
First advance tax instalment of the financial year.
By 15 September
Second instalment.
By 15 December
Third instalment.
By 15 March
Final instalment, before the financial year ends on 31 March.
Advance tax applies when your total tax for the year is more than ₹10,000. Salaried employees usually have it covered by tax deducted at source. File your return by the due date, and report any foreign bank accounts or assets as the form asks.
Common Mistakes to Avoid
- Treating foreign income as tax free. As a resident, it is taxable in India like any other income.
- Missing advance tax dates. Paying everything at year end can mean interest on the instalments you skipped.
- Invoicing without an LUT. Once registered for GST, invoicing an export without a valid LUT can leave you owing GST.
- Losing FIRCs. Asking your bank for a year of certificates at once is slow; collect each one as the money arrives.
- Mixing personal and work money. A separate bank account for your work makes records and filing far simpler.
A Simple Record-Keeping System
Keep these together every month
- Every invoice you send, numbered in order.
- Bank statements showing each foreign payment.
- The FIRC or FIRA for each payment.
- Receipts for genuine business expenses.
- Your advance tax payment receipts.
If you are still deciding how to be engaged, our guide to working for a US startup from India compares contractor and EOR employment, and how to land a remote job that pays in USD covers the job search itself.
Browse Remote Startup RolesReal roles at startups abroad, open to talent in India, with the salary shown on every one.Common questions
Is USD income taxable in India?
Yes, if you are a tax resident of India. Income from a foreign company is taxed in India like other income. Contractors declare it as professional or business income; employees through an Employer of Record have tax deducted from salary.
Do freelancers need to pay GST on foreign clients?
Freelancers above the GST threshold must register. Services exported to clients abroad and paid in foreign currency are usually zero-rated, and with a Letter of Undertaking you can invoice without charging GST.
What is a FIRC and do I need it?
A Foreign Inward Remittance Certificate is issued by your bank to confirm a payment arrived from abroad in foreign currency. It supports your GST export position and your tax records, so keep one for every payment.
Key Takeaways
- 1
If you are a tax resident of India, your income from a foreign company is taxable in India, like any other income.
- 2
As a contractor it is professional or business income you declare yourself. As an employee through an Employer of Record, tax is deducted from your salary.
- 3
Contractors above the GST threshold must register. Services exported abroad can be supplied without charging GST under a Letter of Undertaking (LUT).
- 4
Keep your bank's inward remittance certificate (FIRC or FIRA) for every foreign payment, and pay advance tax if your tax for the year is above ₹10,000.
Official sources
- Income Tax Department, Government of India
- Goods and Services Tax Network (GST portal)
- Reserve Bank of India
This guide is general information, not legal or tax advice. Rules change, so check your situation with a qualified adviser, such as a chartered accountant or employment lawyer.
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