Consultancy Work for US based company — Tax complications

POSTED BY rakesh ON June 27, 2012 11:47 pm COMMENTS (14)

My friend was laid off from his company last month. He has now got a consulting offer from a US based company wherein he would work on project basis for 6 months and they would pay him in US $ 1000. As he is an Indian citizen and don’t have NRI account the money would be wire transferred to his normal savings account and hence be taxable. He will be working from home only. They don’t have any offices in India.

As he is working for a US based company he should not be liable to pay tax here. How can he overcome such situation. I don’t think he can open an NRI account without a visa. What would be your advise?

Thanks in advance.

Rakesh

14 replies on this article “Consultancy Work for US based company — Tax complications”

  1. Dear Javed, the cut off point is 10L Rs.

    Thanks

    Ashal

  2. Dear Javed, if the total income crosses the cut off point of zero service tax slab, than only he is liable to service tax.

    Thanks

    Ashal

    1. Javed Khan says:

      Hi Ashal,
      What is the cutt-off point, please help me understand.

      Regards,
      Javed

  3. Javed Khan says:

    Wouldnt he has to pay service tax at 12.336% ?

  4. I think he will have to pay tax in india because the money he is getting is in INDIA only , he is not leaving india and hence he is not an NRI .

    1. rakesh says:

      Manish,

      Thanks for your reply.

  5. rakesh says:

    Dear Ashal Ji,

    If its possible to open an NRI A/c then the funds transferred to this account will not be taxable, is this right?
    It we cannot open an NRI A/c then what would be the tax implications.

    1. Dear Rakesh, Please try to understand, as the person is not leaving India & earning his income while living in India, all the external income (be it from USA or any other country) is liable to tax in India. No matter the money is kept in normal Indian account or FCNR account. As the person is not NRI, he can’t open NRE or NRO account.

      Thanks

      Ashal

      1. rakesh says:

        Dear Ashal ji,

        Thanks for your reply, cleared my doubt. As he will be a consultant he won’t be eligible for any benefits namely HRA, PPF, LTA, etc. How can he save tax?

        1. Dear Rakesh, in his case the income ‘ll be under the head – income from business or profession. So he can set off following expenses from his income before calculating taxable income –

          1. Office rent
          2. Electricity bill
          3. salary to any other employee under him
          4. Mobile & telephone bill
          5. Internet bill
          6. Fuel bills
          7. Vehicle related other expenses (if any vehicle is there)
          & many other

          Thanks

          Ashal

          1. rakesh says:

            Dear Ashal Ji,

            Thanks for the detailed reply, appreciate it. So in this case he would not be eligible to claim tax under Sec 80C, 80D.

          2. Dear Rakesh, you are getting it wrong. Let me give you an example – Say his income before any deduction is 5L Rs. in a FY. Now the above said deductions are around 2L Rs. So the income to him after these expenses or should I say net profit from, business = 3L Rs. Now He can invest in PPF, NSC, Bank 5Y FD, Insurance prem. & many more instrument for 80C & 80D benefit.

            So for the given example after taking 1L Rs. of 80C & 15K of 80D, his net taxable income ‘ll become 1.85L Rs. & you already know that for current FY, the zero tax slab is 2L Rs. so even after earning 5L Rs. your friend ‘ll not pay a single Rs. as Income Tax as per above given example.

            Actual nos. may change the equation.

            Thanks

            Ashal

          3. rakesh says:

            Dear Ashal Ji,

            This is great stuff, many thanks for the detailed example.
            cleared all my doubts.

            Rakesh

  6. Dear Rakesh, are you asking for bank account or tax implications? Please clarify.

    thanks

    Ashal

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