Yes, after the expiry of your H-1 B visa, you can work from India remotely for a US company. In this, you are not alone. Many former H-1 B visa holders from India work remotely for U.S. companies. It is because it provides them with higher pay, flexibility, and more work options. Considering this, the rise of the remote work culture and the flexibility that US employers offered has also made it easy for Indian residents.
However, working outside India also entails legal and tax obligations. To help you out in this blog, you will get to know about the tax obligations that you face while working for a US company. Additionally, where is your income taxable? Read on to gather all the information about it.
Key Takeaways
- Indian residents and NRIs can continue working remotely for a US company after their H-1 B visa expires.
- Under FEMA regulations, you should repatriate your foreign income within 9 months.
- Submit Form W-8BEN or W-8BEN-E to avoid US tax withholding.
- When filing the tax returns in India, it is vital to report your foreign assets and income.
- If your freelance work income is more than INR 75,00,000 annually, use section 44ADA for presumptive tax.
Understanding the Situation for Working Remotely from India for a US Company
As mentioned above, yes, you can work for a USA company from India even after your H-1B visa expires. With technological advancements and a globalized workforce, remote work has become a popular option for many.
However, when applying for US work opportunities, you need to classify yourself as either a contractor (freelancer) or an employee. In case you fail to do so, you and your US company could face legal consequences, including penalties and fines. Further, you also need to declare your employment status to the Indian tax officials to avoid legal consequences.
Working remotely for a US company offers you several benefits. It includes having more work options, flexibility, lower living costs, higher pay, and a better work-life balance. However, it also comes with several challenges, including time differences, tax obligations, and more. An individual needs to understand and comply with Indian and US tax laws, labor laws, employment regulations, and other legal requirements.
Considering this, in India, your tax obligations are decided by your residential status and income level. Additionally, you may need to pay tax in the US company, as your income is sourced there.
This was all about the situation of an individual working remotely from India for a US company. Moving further, let's know the FEMA rules for working remotely for a foreign company.
FEMA Rules for Working Remotely for a Foreign Company
Working remotely from India for a foreign company, under the Foreign Exchange Management Act (FEMA), you need to do the following things:
- According to the agreement, you should repatriate all your foreign earnings to India within 9 months (180 days).
- Should maintain proof of your inward foreign remittance, like FIRA (Foreign Inward Remittance Advice).
Here are some FEMA rules to consider when working remotely from India for a foreign company. Moving ahead, let's know the Indian tax laws that you need to consider when working remotely for a foreign company.
Indian Tax Laws when Working Remotely for a Foreign Company
As mentioned earlier, in India, the taxability of income depends on your residential status stated in Section 6 of the Income Tax Act. So, under the Income Tax Law, after the expiry of your H-1B visa, if you are determined as a "Resident & Ordinarily Resident." In this situation, you are liable to pay tax on your global income in India.
However, in case you are determined as an NRI or RNOR, then you are only liable to pay tax on the income that you receive or earn in India. It is determined by the number of days you stayed in the country. As a general rule, if you have been in the country for less than 182 days, you will be stated as an NRI.
So, this is how your residential status impacts your tax obligations on your foreign-earned income in India. Moving on, let's know where you are liable to pay taxes — India or the USA.
Where Will You Pay Taxes?
Being a non-US citizen, working for a US company, you are liable to pay tax in your home country, i.e., India. Since you are not a tax resident in the US, and performing all your duties in India. Additionally, Article 15 of the USA-India DTAA also mentions this. According to this, if a person is a tax resident in India, they are not liable to pay tax on income received from the USA in India.
Considering this, if you are an employer, you need to fill out Form W-8BEN. It will help you avoid 30% tax withholding in the US. Additionally, in case you are a freelance worker, fill out Form W-8BEN-E.
Through these documents, your US company will prove to the IRS that you are not eligible to pay US taxes. However, the income you received from your US company will be taxable in India. Considering this, whether you are an NRI, RNOR, or ROR, you are liable to pay taxes on the income you received in India.
Further, if your taxes are withheld in the US, you have two options:
- To claim tax refunds from the IRS, fill out Form 1040-NR
- Additionally, while filing your tax return, you can also claim a foreign tax credit (FTC)
Also, if you are earning in USD or have a US bank account, while filing ITR in India, you must disclose:
- Foreign income in Schedule Foreign Source of Income (FSI)
- Foreign assets, cards, accounts in Schedule Foreign Asset (FA)
In case you fail to mention this in your ITR form, under the Black Money Act, you face a penalty of INR 10,00,000 even if it is done unintentionally.
So, this was all about where your income received in India from the USA will be taxable. Moving ahead, let's know why working as a freelancer/ contractor is better from India to work in a US company.
Why Working as a Contractor/ Freelancer Is Better from India for a US Company?
Working as a contractor/ freelancer from India for a US company helps you save taxes. If your income from the US company is less than INR 75,00,000 annually, you can claim presumptive taxes. These taxes are available under Section 44ADA. Through these provisions, on a fixed percentage, you pay taxes on your gross income. These are the perks you get:
- 50% of your gross income is treated as profits
- No books of accounts required
- Tax is imposed only on that 50%
For instance, if you earn INR 60,00,000 under section 44ADA, only INR 30,00,000 is taxable.
So, this is why working as a freelancer/ contractor is better for a US company from India. Moving further, let's look at the scenario where you need to pay GST.
When You Need to Pay GST in India while Working for a US Company?
If your annual freelance income is more than INR 20,00,000, then GST registration is compulsory. Once the registration is done, your freelance work will be stated as an export of services. Considering this, you can apply for:
- Under the LUT (Letter of Undertaking), zero-rated supply
- You still file GST
- On your US clients, no GST will be imposed
This is the scenario when you need to pay GST in India while working for a US company.
Final Thoughts
Lastly, the idea of remote work from India for a US company after your H-1B visa expires is a good option. It provides you with better job opportunities, higher pay, and flexibility. Additionally, with Form W8BEN, you get exempt from paying taxes in the US. Also, under section 44ADA, you can get presumptive tax benefits and pay zero GST on exports. This setup provides you with both lifestyle and financial flexibility.
Further, if you still have confusion or want to know more about your tax obligations, connect with Savetaxs. Our experts will solve all your queries and assist you in tax planning and ITR filing.
Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.
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