Income Tax Liability on Software Exports

Hi Horizon22! Here's a breakdown of your income tax implications for your software export business from both the US and Indian perspectives:

1. US LLC Income Tax Liability

• US Side:

  • A Delaware LLC is usually a pass-through entity for tax purposes.

  • If you’re the sole owner, the LLC’s income flows to you personally.

  • If you are a non-US resident, generally, US taxes apply only on US-sourced income. Software exports to outside US are usually not taxed by the US.

  • However, if you are a US tax resident or have effectively connected income in the US, you might have US tax obligations.

  • Also, state-level taxes might apply in Delaware depending on your LLC’s structure.

• India Side:

  • As an Indian resident taxpayer (assuming you are), your global income is taxable in India.

  • Income earned by the US LLC and profits deposited in a US bank account in your name will be considered your income.

  • You need to report this income in your Indian tax return.

• DTAA (Double Taxation Avoidance Agreement):

  • India and the US have a DTAA that provides relief to avoid double taxation.

  • Taxes paid in the US (if any) can be claimed as a credit against your Indian tax liability on the same income.

  • However, if there is no US tax on export profits, Indian tax applies fully.

2. If Paid Directly to Your Indian INR Savings Account

• Payment received in India for software exports will qualify as export income.

• Export income is considered foreign exchange earnings and eligible for benefits under Indian tax laws.

• Under Section 10A/10AA (if applicable) or special export incentive schemes, some or all of the export profits may be tax-exempt or eligible for deductions if you have registrations like STPI or SEZ.

• Without registrations, normal income tax rates will apply.

• You need to convert the foreign currency into INR at the applicable exchange rate on the date of receipt.

3. Sole Proprietorship Income (USD into EEFC Account)

• The income credited to your EEFC (Exchange Earners Foreign Currency) account is treated as export income.

• Tax liability depends on:

  • Whether you have registrations (STPI, SEZ, etc.).

  • Eligibility for export-related deductions.

• If no special export deductions apply, profits will be taxed as business income at normal rates.

• Maintain proper documentation for export transactions.

Summary