With remote work becoming common, many individuals in India now provide full-time services to foreign companies while physically working from India. This raises important questions around contract structure, income tax, GST, and banking arrangements.
1. Contract Structure – Employee vs Independent Consultant
Broadly, there are two ways to structure the relationship with the foreign company:
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As an Employee
You are treated as an employee of the foreign company, receiving salary directly from overseas. Since you are actually performing services from India, the income is generally considered to accrue or arise in India and is taxable in India, irrespective of where it is paid. The foreign company may also need to consider its own compliance exposure (for example, the risk of creating a taxable presence in India).
- As an Independent Consultant / Professional
You can enter into a professional services agreement as a self-employed individual or sole proprietor. In this case, your receipts are treated as business or professional income, and you raise invoices to the foreign client. This model is often operationally easier for the foreign company and provides flexibility for you in terms of expense claims and tax planning.
The appropriate structure should be decided after professional advice, considering both commercial and regulatory aspects.
2. Income Tax and Residential Status
In India, taxability depends on your residential status for each financial year:
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Non-Resident (NRI) / Resident but Not Ordinarily Resident (RNOR)
Only income that is Indian-sourced or deemed to arise in India is taxable. Where services are actually performed from India, the related income is typically treated as Indian income and taxed in India, even if paid in foreign currency into an overseas or Indian bank account.
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Resident and Ordinarily Resident (ROR)
Once you become fully resident, your global income is taxable in India. Foreign tax credit may be available where tax is also paid abroad, subject to double taxation avoidance agreements and documentation.
In all cases, tax is computed at applicable slab rates, and presumptive taxation may be available in certain professional/consulting situations.
3. GST and Banking Considerations
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GST Registration
If you operate as an independent consultant and your aggregate receipts exceed the notified threshold (for example, ₹20 lakh, subject to prevailing law), you are generally required to obtain GST registration. Services provided to a foreign client may qualify as export of services, subject to conditions such as receipt in convertible foreign exchange and place of supply outside India. With a Letter of Undertaking (LUT), exports can often be made without payment of IGST while still allowing input tax credit.
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Type of Bank Account
For pure employment income, a savings account is usually adequate. For consulting or business income, a current account is preferable and aligns better with GST and business banking norms. It is also advisable to obtain FIRC/foreign remittance advice from the bank for inward foreign receipts.
Proper documentation—contracts, invoices, bank statements and working papers—helps ensure smooth compliance and easier explanations during any future tax or regulatory review.
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