Tax implication for individual contractor

Raphael (Chartered Accountant) (214 Points)
Replied 08 January 2015

This issue can be looked under 2 angles:

1. Whether you are planning to be a non-resident.

2. Whether you will be a resident in the year of contract.

1. If you are a non-resident i.e you will be wokring in U.S for your client for more than 182 days then your income in USA will be taxable as per U.S laws.

In this case you will be able to claim dedcution under Chap VIAif you have any other income in India, but there will be certain limitations like non availability of invetment in PPF,NSC etc..

2. In case you are a resident in the year of contract, then your income will be charged to tax as business/profession income. Income can be assessed as salary if you have a valid employment contract with the U.S client. In such a case the U.S client may withold tax as per the U.S tax laws and double taxation agreement (I have limited knowledge about U.S tax laws), but you will be eligible to claim relief/credit for the tax paid in U.S while filing your return in India.

In this case you will be able to claim the deductions under chapter VIA to the full extend applicable to a resident.

If you are not in employment with the U.S client and is filing return as Business/Professional income then you can claim other expenses incurred by you for running the business while filing the return.

Srinath Menon (Others) (37 Points)
Replied 08 January 2015

Hi ,

Thanks for the reply .

1. I will be resident of India and not moving to the US .

Since I will not be an employee of this US based company would I still be liable to pay TDS in US ? So , would all the tax deductions (PF and Gratuity excluded) be something that I can claim ?

Thanks,

Srinath

Raphael (Chartered Accountant) (214 Points)
Replied 08 January 2015

Dear Srinath,

If you are a resident then your global income will be taxable in India. And yes you can claim all the deductions you are presently claiming in India now.

W.R.T the income in U.S, you will be receiving the income only after the Company witholding the tax from your income. This is my presumption. As i told you earlier i have limited knowlede in U.S taxation provisions, but if the similar activity is undertaken by the U.S citizen to an Indian Company, then the Indian Company will dedcuct tax before remitting the amount to U.S. This is as per the provisions of Double taxation Avoidance agreement entered between India and U.S. Hence the same analogy might apply in your case too. I advise you to specify a clause in the agreement entered with U.S company wherein it is mentioned that the billed amount should be remitted net off taxes. Hence you will receive the entire bill amount and the U.S company will bear the tax portion. Else you can ask them to provide certificate of witholding tax paid by them to the governement and then you can claim the same as relief/credit in India while filing your return.

Srinath Menon (Others) (37 Points)
Replied 09 January 2015

Hi Raphael ,

Thank you very much for giving detailed inputs . That makes it all a lot more cleared .

Have some more queries regarding the payment mode :

1. Can the US company pay the remuneration directly to my savings account in India in Dollars ?

2. For the dollar credit should I be giving / maintaining / submitting any documents which shows this is part of the contractual agreement ?

-Regards,

Srinath

Raphael (Chartered Accountant) (214 Points)
Replied 10 January 2015

Dear Srinath,

The U.S Company can remit the payment to your saving account but the proceeds will be converted into INR upon receipt. You can open a foriegn currency account with your banker for keeping your export receipts in FOREX. But I believe you have to convert the same within a specific time period to INR.

On dollar reciepts your banker will give you a Foreign inwards remittance challan (FIRC). This can be kept as proof of your forex income.

Please communicate with your banker for more details on the RBI guidelines on opening forex account.

Srinath Menon (Others) (37 Points)
Replied 12 January 2015

Hello Raphael ,

Thank you very much for the clarification . It is very much appreciated .

In my case the employer has agreed to pay $X for a year which will be paid out on a bi-weekly basis through wire transfer to my savings account .

Now , for this payment do we need to raise any Invoice or would the agreement b/w me and employer holds good as a proof these payments ?

-Regards,

Srinath

Raphael (Chartered Accountant) (214 Points)
Replied 12 January 2015

It will depend on the nature and terms in your agreement, but i beleieve the agreement would be enough.

Srinath Menon (Others) (37 Points)
Replied 12 January 2015

Is there a tax calculator where I can check rough tax amount ? What I am seeing is only for Salaried employees but for my case it would be a "Self employed" one ? So , is there a separate tax calculator ?

Thanks,

Srinath

Raphael (Chartered Accountant) (214 Points)
Replied 12 January 2015

Please check the income tax site. Link given below:

https://www.incometaxindia.gov.in/Pages/tools/income-tax-calculator-234ABC.aspx

Srinath Menon (Others) (37 Points)
Replied 12 January 2015

In this would I select "Individual" ? I am asking this since not sure if being an Independent contractor would come under "Individual" or "Business" ?