Since services outsourcing to India began in the 1980s, it has rapidly accelerated, and India is now one of the top providers of skilled human resources.
India is, in fact, the second-fastest-growing freelancer market globally, after the pandemic forced many people to become independent contractors.
Who is an independent contractor?
An independent contractor works for a particular client (company or a person) but is not their active employee. In some places, they are also known as sole traders, entrepreneurs, freelancers, or gig workers.
Independent contractors can work for multiple clients simultaneously, engaging in short- and long-term projects. They get to determine their work schedule, and the only control their client has is on the final results of their work.
Independent contractors usually don't hold an integral role in the client's company, such as management positions. They are usually hired to complete specific projects, although some companies may choose to have an ongoing partnership with them. Contractors are never a part of their client's payroll, and hence, the company is not responsible for providing medical insurance or withholding taxes from their pay.
Most labor laws do not cover contractors. However, companies are legally expected to regulate their engagement with them.
As a contractor, you can work with other clients across industries. You get the flexibility and freedom to choose your partnerships.
While many Indian contractors work for clients without legal agreements, it's always better to have a contract in place.
Taxes for an independent contractor in India
As a contractor, you are solely responsible to pay your tax. There are two types of taxes that need your attention:
1) Income tax
Individual contractors are legally bound to pay income tax if their total annual income is more than ₹2.5 lakh (total annual income is gross annual income less eligible deductions).
You must file your income tax return (ITR) for each financial year and pay tax. Any tax deducted by clients is utilized for payment of tax liability. Deductions above your tax liability can be claimed as a refund when filing ITR.
If your total annual tax liability exceeds ₹10,000, you must pay advance tax every quarter. Due dates for the same are 15th June, 15th September, 15th December, and 15th March. The benefit of paying advance tax is that you do not have to pay the entire amount at one time and can pay it over four installments within the stipulated due dates. There is an interest in case of late payment or non-payment of the minimum amount.
2) GST (Goods & Services Tax)
Independent contractors are legally bound to pay GST if their annual income is over ₹20 lakh. If you reside in North Eastern and hilly states (categorized as special category states), you are required to pay tax if your annual income is over ₹10 lakh.
When working with international clients, it is essential to clarify payment terms and tax matters. Here's what you need to discuss with them:
- Applicable GST rules in India.
- Rules for taxes applicable in their country.
One crucial aspect you must be mindful of is DTAA (Double Tax Avoidance Agreements). Suppose you earned an amount from a client in the US. The way your Indian clients deduct TDS from your payment, your US client may also deduct taxes applicable in their country. This means your income is taxed twice -- first in the US and then in India.
To avoid such double tax, India has entered into DTAA with many countries. A tax residency certificate will help you claim tax relief in one country.
What is the cheapest way to receive money internationally?
There are various ways of getting paid internationally without any fee. For example, Google Pay is a free and simple way to receive payments where the amount is directly transferred from your client's bank account to yours. Payments done via checks are also mostly free; however, they can take a long time to process.
How to accept foreign payments as an independent contractor?
The various ways to accept payments in India as a contractor are as follows:
Wise
One of the least expensive ways to receive money in India is through this service. With Wise, you get your payment swiftly at a competitive exchange rate.
You can receive payments in different currencies from clients anywhere around the world. There are no monthly charges or setup fees and no charges to receive payments. You can expect to receive payments into your bank account within 2-3 days of being paid. You also don't require a Wise account to receive money.
For your client, Wise means a low remittance cost and the flexibility to pay you through most debit and credit cards.
OFX
OFX is another way to receive money internationally without a fee. It offers strong exchange rates and 24x7 customer service. The transfer takes approximately one to five days, with the minimum transfer amount being $1000.
InstaReM
Indian contractors can also receive their international payments through InstaReM. It is easy to use, and you get the exchange rate that you see on Google. A potential inconvenience to your client in using this service is it doesn't accept debit and credit cards.
PayPal
PayPal is probably the most prominent money transferring company worldwide and is a popular way to receive payments in India. While its processing fees are higher than most other remittance services, it is fast, provides a high level of security, and is reliable. Due to its numerous benefits, many contractors and freelancers use PayPal for their international payments.
Western Union
Western Union is another popular gateway for money transfers, bank transfers, and bill orders. Once paid, you will receive your payment within minutes to a few days. Western Union's numerous agents in India make receiving payments via cash pickups convenient. Also, its Price Estimator Tool is helpful for clients to calculate their remittance fees in advance.
RIA
RIA is one of the better-known remittance networks operating in close to 150 countries. You can expect good customer service, and you will receive your payment generally within three days. RIA is easy-to-use and provides instant free transfers through most banks.
Your client can avail free debit card transfers for one month. They should also note that payments done with credit cards are relatively expensive.
Keep in mind that RIA does an extensive security check, which can take up to one month. So if you are looking to receive a transfer quickly, RIA is not for you.
Transfast
Just like its name, Transfast provides fast transactions at competitive exchange rates. The service is safe, and you can receive your payment instantly in all major banks.
The transfer fee is low, and if your client is transferring over $1000 through a bank account, they will not be charged any transfer fee. The Transfast app is available on both IOS and Android.
Remitly
Remitly is a safe and cost-effective way to receive money in India. Usually, you'll receive your payment within 3 to 5 days of being paid, and if your client uses its express transfer service, you will be paid instantly. The transfer fee for amounts below $1000 is $3.99, and your client will be charged a remittance fee of 3% on card payments.
Xoom
Xoom is a user-friendly service known for its fast money transfers. Through Xoom, you can expect the payment to hit your account within 1 or 2 days of being paid.
Xoom offers low remittance costs for your client and provides fee-free transfers over $1000 when using banks as the sending medium. Your client can also track their transfers through the Xoom app.
Indian Banks
Receiving payments directly in your Indian bank account is also an option, although most clients like it the least as the transfers take long and banks can hold them for additional checks.
SBI
There are three options in SBI to receive money from abroad. You can receive it through demand draft, wire transfer, or Express Remit.
Remember, Express Remit is only applicable for individual accounts, not business accounts. Also, SBI charges the fees to the sender, so your client may, in turn, cut the corresponding amount from your payment.
Axis Bank
Axis Bank lets you receive payments or inward remittances directly into your business account through wire transfer, online inward remittance option, or SWIFT. These are available in fourteen currencies, and you need to provide all of the necessary documents to verify the transaction.
ICICI
You can also use ICICI's inward remittance option to receive your international payments. You are required to provide your overseas client with your account number along with the wire transfer instructions. Once they send the payment, it can take approximately 24 to 48 hours to receive it at ICICI. You must then provide supporting documentation to the bank to receive the funds in your account.
HDFC
HDFC currently offers international money transfers into India in twenty-two currencies, including AED, AUD, USD, JPY, EUR, GBP, CAD, etc. A foreign currency check collection and foreign currency demand draft are also available. There is no charge to you for receiving money; your client will have to pay the fee.
Parting thoughts
If you are interested in working for a reputable company without any uncertainty or hassle, look no further. Our company Starkflow works as an employer of record (EOR), and working for us, you will automatically be on our payroll and be paid through us.
As a legal employer and EOR, we ensure that our employees happy with their work agreement and have a rapid, transparent onboarding. We offer excellent benefits and a reliable employment contract compliant with local regulations. We pay the agreed monthly salary on time and are always connected with our employees.
For more information, contact us now!