Tax info required to take up an IT consultancy job (for a US based company) from India?

Question

I wanted to know, if I take up a software consultancy job with a US based company, and have to go back to India to work from there, what are the tax implications if I need to work from India in a US firm(which has no office in India). Also is it legal to carry out this job? If not, what are my options?

Answer 1

First thing you should know that its purely legal to do consultancy job from India by a foreigner.

As far as Income Tax implication is concerned, its quite complex question raised by you. The goverment of India , has specifically , for this purpose set up Authority on Advance Ruling . You can apply to such authority and ask question , the decison of the AAR shall be final and binding on Income Tax Authority. Therefore , you better apply to AAR, New Delhi.
As far as taxation of income of Non Resident, which you are , is concerned , you should note following points :

1. As long as you are non Resident, your income which is received in India or accrued in India or arisse in India or deemed to accrue or arise in India, shall be taxable.
2. The Deeming provison is given in Section 9 of the Act, which states :
The following incomes shall be deemed to accrue or arise in India :

(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India.

........
Explanation 2. For the removal of doubts, it is hereby declared that business connection shall include any business activity carried out through a person who, acting on behalf of the non-resident,

(a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non-resident; or

(b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or

(c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:

And You should also MOST IMPORTANTLY in your case should note that Section 9(1)(ii) states "income which falls under the head Salaries, if it is earned in India"

Thus if the Assessing Officer finds that the Consultancy Job you are doing for US company has been done on account of your presence in India and otherwise it was not possible, your SALARY earned even though received in US , shall be DEEMED as Income received in India .


I would suggest you read my recent blog on Indian Income Tax laws where lots on Non Resident related posting are there for an Idea.