Contact UsWe are a small business that often hires consultants out of India. Can you tell me if we have any taxes due in India for hiring consultants in that market? What are the tax rules and regulations surrounding hiring offshore workers in India for a US company?
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Tax Professional Answers
Dr. Daniel Erasmus
The answer starts with determining whether you have a permanent establishment in India. The DTA between India and the US contains such a provision. Look at clause 5 at www.irs.gov/pub/irs-trty/india.pdf
What are those consultants doing?
You would need to establish from an Indian tax specialist if there is any deeming provision that deems the US business to be an employer in India and responsible for payroll deductions. This will be subject to clause 5 of the DTA referred to above.
Once you have identified if you fall under any of the categories in clause 5 and precisely what the consultants do, a better and more detailed answer can be provided.
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570 weeks ago
What are those consultants doing?
You would need to establish from an Indian tax specialist if there is any deeming provision that deems the US business to be an employer in India and responsible for payroll deductions. This will be subject to clause 5 of the DTA referred to above.
Once you have identified if you fall under any of the categories in clause 5 and precisely what the consultants do, a better and more detailed answer can be provided.
Abraham Itani, CPA
I am not an expert on India Taxation of non residents, so I will leave that part to the people who can answer it.
As for your payments to Non Residents (NR) consultants I can address that issue. In general the term hiring that you are using in your question is associated with employment and employees. Assuming that you do have a pure independent consultants in India that are working for you, what is your US tax obligations you ask.
To determine the tax-ability of any income for a NR there are two tests to go through.
1-Is that income taxable for the NR. The code address this issue by stating that income is taxable if it is Fixed, Determinable, Periodic or Annual (FDAP). There are income that is specifically excluded for NR even though it falls under FDAP namely interest income earned by a NR. Professional services is an FDAP and as such it is taxable.
2- The second test is sourcing the income, in other word determine where, when and how that income was earned. Professional services are sourced to the country where the service was rendered. In this case it sourced to India.
Therefore even though this income is taxable for the US but it is sourced to India and as such and as long as your independent agents stay outside of the US ( they can come into the US for a period no more than 89 days in a year.
I hope this answers your question, If I can be of any help please let me know, my e-mail is: itaniabe@aol.com
Regards,
Abraham Itani, CPA
www.itanitax.com
Leave a Comment
570 weeks ago
As for your payments to Non Residents (NR) consultants I can address that issue. In general the term hiring that you are using in your question is associated with employment and employees. Assuming that you do have a pure independent consultants in India that are working for you, what is your US tax obligations you ask.
To determine the tax-ability of any income for a NR there are two tests to go through.
1-Is that income taxable for the NR. The code address this issue by stating that income is taxable if it is Fixed, Determinable, Periodic or Annual (FDAP). There are income that is specifically excluded for NR even though it falls under FDAP namely interest income earned by a NR. Professional services is an FDAP and as such it is taxable.
2- The second test is sourcing the income, in other word determine where, when and how that income was earned. Professional services are sourced to the country where the service was rendered. In this case it sourced to India.
Therefore even though this income is taxable for the US but it is sourced to India and as such and as long as your independent agents stay outside of the US ( they can come into the US for a period no more than 89 days in a year.
I hope this answers your question, If I can be of any help please let me know, my e-mail is: itaniabe@aol.com
Regards,
Abraham Itani, CPA
www.itanitax.com
Rajat Bose
You will not be liable to pay any taxes in India. It's the consultants in India working for you who will be liable to pay taxes. Depending upon the exact nature of work done by such consultants, they may charge Service tax from you on their invoice.
To understand the Indian tax structure, please feel free to write to me off line.
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557 weeks ago
To understand the Indian tax structure, please feel free to write to me off line.