Working in India for a Foreign Employer? Here’s How Your Salary Is Taxed

I Work From Home in India for a Foreign Company – Which Country Taxes My Salary?

Summary: Remote employees working from India for foreign employers are generally liable to pay income tax in India on their salary, even if the employer pays in foreign currency and does not deduct Indian tax. Under the Income-tax Act, residents are taxed on their worldwide income, while tax treaties generally allocate taxing rights based on the country where the employment is physically exercised. The article explains how Article 16 of the India–US Double Taxation Avoidance Agreement (DTAA) applies to employment income, the implications of working remotely from India, and situations where the foreign country may also acquire taxing rights. It also highlights the responsibility of employees to discharge advance tax where no tax is withheld, the consequences of non-payment, the availability of Foreign Tax Credit (FTC) where tax is paid overseas, and reporting obligations relating to foreign assets and income. Practical guidance is also provided for employees receiving ESOPs or RSUs and those spending part of the year working abroad.

Issue: I sit in Bengaluru and work remotely for a US tech company. They pay me in dollars, deduct nothing, and I am terrified I am quietly building up a huge tax problem. Where am I even supposed to pay tax?” – a remote software engineer.

Remote work for a foreign employer has exploded, and the tax questions have not caught up in most people’s heads. The good news: the answer is usually simpler than the fear. The catch: because no one is deducting tax for you, the responsibility lands squarely on your shoulders – and if you ignore it, interest quietly piles up. Let me lay it out.

The core principle: salary is taxed where you do the work

Under most tax treaties (the dependent personal services or employment article), salary is taxed in the country where the employment is actually exercised – that is, where your body is while you work. You are physically in India, tapping away at your laptop in Bengaluru. So India has the right to tax that salary. The fact that your employer and your pay are American does not move the taxing right to the US, as long as you are sitting in India.

On top of that, if you are a Resident of India for the year, India taxes your worldwide income anyway. So from both angles, this salary is taxable in India.

What the India-US treaty says: Article 16

The India-US Double Taxation Avoidance Agreement (DTAA) deals with salary under Article 16 – Dependent Personal Services. The rule is straightforward: remuneration a resident of India earns from employment is taxable only in India, unless the employment is actually exercised in the United States. Since you are physically working from Bengaluru, the employment is exercised in India – so Article 16 hands the sole taxing right to India, even though your employer and your pay are American.

Article 16 carves out a narrow exception for trips to the US. If you fly there and work, the US may tax the salary for those days only if you are present in the US for more than 183 days in the relevant taxable year, or your remuneration is paid by (or borne by) a US-resident employer or a US permanent establishment. For an Indian resident working for a US company but sitting in India, none of those triggers is met – so India alone taxes the salary.

One wrinkle: if you are a US citizen or green-card holder, the US taxes your worldwide income regardless of the treaty (the “saving clause” in Article 1). Then both countries tax the same salary, and you lean on the treaty’s relief-from-double-taxation article (Article 25) plus India’s Foreign Tax Credit to avoid paying twice.

The real trap: nobody is deducting your TDS

An Indian employer would deduct TDS every month and you would barely notice. A foreign employer with no Indian presence typically deducts nothing. That money hitting your account is gross – the tax is still owed, and it is your job to pay it as advance tax in instalments through the year (instalment schedule under Section 211, or Section 408 of the Income-tax Act, 2025). Miss the instalments and you pay interest under Sections 234B and 234C (Sections 424 and 425 of the 2025 Act).

Example: advance tax on an INR 30 lakh remote salary

Suppose Arjun earns the equivalent of INR 30,00,000 from his US employer in FY 2026-27 (AY 2027-28), with no Indian TDS. Under the new regime (Section 115BAC, or Section 202 of the 2025 Act), his tax (with 4% cess) comes to about INR 4,99,200. He must pay it himself, on this schedule:

Illustrative; new regime, FY 2026-27 (AY 2027-28). Figures rounded.

If Arjun instead waits until July 2027 to pay it all at filing time, he will owe the same INR 4,99,200 plus several months of interest – easily INR 25,000 to INR 40,000 of avoidable cost. Setting aside roughly a third of each pay cheque and paying quarterly keeps him clean.

What about the days I travel abroad for work?

This is where it gets nuanced. If you fly to the foreign country and physically work there for a stretch, that other country may get the right to tax the salary relating to those days – and your own residency status can start to shift if you spend enough time outside India. Treaties usually have a 183-day style rule that decides whether short work-trips abroad are taxed there or only at home. The practical advice: keep a simple log of your travel days and where you worked. For an occasional business trip, nothing changes. For someone splitting the year across two countries, that day-count log is the single most important record you can keep.

What if the foreign country also taxed me?

Sometimes the foreign payer withholds something, or a bonus or ESOP gets taxed abroad. If you have genuinely paid tax in the other country on income India is also taxing, you claim a Foreign Tax Credit under Section 90 read with Rule 128, filing Form 67 (for FY 2025-26 and earlier) – or, from FY 2026-27, under Section 159 of the 2025 Act read with Rule 76 of the Income-tax Rules, 2026, filing Form 44 – before your return. You are not taxed twice – but you must claim it, with proof. The relief is the lower of the foreign tax paid and the Indian tax on that income, so keep every withholding statement your employer gives you.

A few things remote workers routinely miss

• ESOPs and RSUs from a foreign employer are taxable in India too – at vesting/exercise as salary, and again as capital gains when you sell. Track them.
• Foreign bank accounts and foreign shares must be reported in Schedule FA of your Indian return if you are an ROR – non-disclosure carries heavy penalties, separate from the tax itself.
• Social security contributions deducted abroad are usually not creditable in India; only income taxes generally qualify for FTC.
• If you spend long stretches working from the foreign country during the year, your residency status can shift – get it checked, because that changes everything.

Remote work across borders is perfectly manageable – but it runs on self-discipline. Pay advance tax on time, keep your foreign-income records, claim FTC where due, and disclose foreign assets. Do that, and the dollars in your account stay yours.

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About the Author: Sonia Dawar is a Chartered Accountant and the founder of Dawar & Co., advising NRIs, foreign-owned businesses and globally mobile professionals on cross-border taxation, DTAA relief and tax compliance. She is known for turning tangled international tax problems into clear, practical answers clients can act on. Have a cross-border tax question? Write to her at sonia@dawarandco.com or visit dawarandco.com.