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I am an Indian citizen and I work from India as a freelancer for an U.S.-based IT company. I am getting monthly payments directly into my Indian bank account. My colleagues' monthly payment come to my account first, and I pay them later.

I have not registered any company here in India. The monthly payments are fixed and arrive without me raising any invoice/PO for it. Payments come every month based on a mutual understanding, for the services I provide.

How do I pay tax here in India? What is the criteria for these transactions to be valid as per the Income Tax department? Getting money from the U.S., directly into my Indian bank savings account ... is this legal or not..?

What is the solution for people like me who don't have a registered firm here in India and as a freelancer are getting monthly payments directly to their Indian bank accounts without raising invoice or purchase order? Please advise.

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Bhaskar: most probably you will be liable to pay service tax as well. Please verify this from a service tax professional. –  Jags Dec 27 '12 at 11:03
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2 Answers

You can receive money directly into your savings bank account. It is perfectly legal. FYI the Bank as part of regulation would report this to RBI.

As the funds are received for the services you have rendered, You are liable to pay tax on the income. The income is taxed as professional income similar to the income of Doctors, Lawyers, Accountants etc.

If you are paying your colleagues, it would be treated as expense. Not only this, you can also treat any phone calls you make, or equipment your purchase [laptop, desk etc] as expense. The difference become your actual income and you would be taxed as per the rate for individuals.

It's advisable you contact an accountant who would advise you better for a nominal fee [few thousand rupees] and help you pay the tax and file the returns.

With or without accountant It is very important for you to record all payments and expenses in a book of accounts.

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There is no reason for you to open a firm. However, it will help you, if you operate separate bank account for business and personal purposes. You can run your business as proprietorship business.

Your inward remittance is your income. You can deduct payment made to your colleagues as salary. You should pay them by way of cheques or bank transfer only. You are also entitled to deduct other business expenses provided you keep proper receipt of the same such as broadband connection charges, depreciation on equipment and more importantly, rent on your house.

If your total receipt from such income exceeds INR 60,00,000 you will need to withhold tax on payment made to your colleagues as also subject to audit of your accounts.

If you want to grow your business, suggest you should take an Import / Export Code in your own name.

You can put any further question in this regard.

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protected by MrChrister May 22 '13 at 14:56

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