Indian citizen working from India as freelancer for U.S.-based company. How to report the income & pay tax in India?
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. 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.
Staying out of India for a certain duration on a year (financial year) deems one to be considered NRI (non-resident Indian). NRIs are not taxed under Indian tax law as they are deemed subject to the resident country tax laws, so for NRI there is no tax liability in India. For your specific case, you could consult a Charted Accountant (CA) and he/she will be able to tell you exactly after looking at your financial data. You won't be paying any taxes for income generated in the US as long as you are not-resident in India. You pay US taxes. You can file a null return in India just in case (all zeroes). If you have any income in India - bank deposits in your name, house rental income and so on - that needs to be declared and tax needs to be paid in India. Tax Deducted at source is applicable to Employee / Employer [contract employee] relations ... it was also made applicable for cases where an Indian company pays for software products [like MS Word etc] as the product is not sold, but is licensed and is treated as Royalty [unlike sale of a consumer product, that you have, say car] ... Hence it depends on how your contract is worded with your India clients, best is have it as a service agreement. Although services are also taxed, however your contract should clearly specify that any tax in India would be borne by your Indian Client ... Cross Country taxation is an advanced area, you will not find good advice free :) "My tax preparing agent is suggesting that since the stock brokers in   India does not have any US state ITINS, it becomes complicated to file   that income along with US taxes Why? Nothing to do with each other. You need to have ITIN (or, SSN more likely, since you're on H1b). What brokers have have nothing to do with you. You must report these gains on your US tax return, and beware of the PFIC rules when you do it. He says, I can file those taxes separately in India. You file Indian tax return in India, but it has nothing to do with the US. You'll have to deal with the tax treaty/foreign tax credits to co-ordinate. How complicated is it to include Indian capital gains along with US   taxes? ""How complicated"" is really irrelevant. But in any case - there's no difference between Indian capital gains and American capital gains, unless PFIC/Trusts/Mutual funds are involved. Then it becomes complicated, but being complicated is not enough to not report it. If PIFC/Trusts/Mutual funds aren't involved, you just report this on Schedule D as usual. Did anybody face similar situation More or less every American living abroad. Also the financial years are different in India and US Irrelevant." There are no clear guidelines. If you are selling as individual, then what ever profit you make gets added to your overall income as you pay tax accordingly. This is true for sole proprietor or partnership kind of firms. If you are registered as a Company, the profits are taxed as business income. There may be VAT and other taxes. Please consult a CA who can guide you in specifics as for eCommerce, there is no defined law and one has to interpret various other tax laws. "I'm assuming that by saying ""I'm a US resident now"" you're referring to the residency determination for tax purposes. Should I file a return in the US even though there is no income here ? Yes. US taxes its residents for tax purposes (which is not the same as residents for immigration or other purposes) on worldwide income. If yes, do I get credits for the taxes I paid in India. What form   would I need to submit for the same ? I am assuming this form has to   be issued by IT Dept in India or the employer in India ? The IRS doesn't require you to submit your Indian tax return with your US tax return, however they may ask for it later if your US tax return comes under examination. Generally, you claim foreign tax credits using form 1116 attached to your tax return. Specifically for India there may also be some clause in the Indo-US tax treaty that might be relevant to you. Treaty claims are made using form 8833 attached to your tax return, and I suggest having a professional (EA/CPA licensed in your State) prepare such a return. Although no stock transactions were done last year, should I still   declare the value of total stocks I own ? If so what is an approx. tax   rate or the maximum tax rate. Yes, this is done using form 8938 attached to your tax return and also form 114 (FBAR) filed separately with FinCEN. Pay attention: the forms are very similar with regard to the information you provide on them, but they go to different agencies and have different filing requirements and penalties for non-compliance. As to tax rates - that depends on the types of stocks and how you decide to  treat them. Generally, the tax rate for PFIC is very high, so that if any of your stocks are classified as PFIC - you'd better talk to a professional tax adviser (EA/CPA licensed in your State) about how to deal with them. Non-PFIC stocks are dealt with the same as if they were in the US, unless you match certain criteria described in the instructions to form 5471 (then a different set of rules apply, talk to a licensed tax adviser). I will be transferring most of my stock to my father this year, will   this need to be declared ? Yes, using form 709. Gift tax may be due. Talk to a licensed tax adviser (EA/CPA licensed in your State). I have an apartment in India this year, will this need to be declared   or only when I sell the same later on ? If there's no income from it - then no (assuming you own it directly in your own name, for indirect ownership - yes, you do), but when you sell you will have to declare the sale and pay tax on the gains. Again, treaty may come into play, talk to a tax adviser. Also, be aware of Section 121 exclusion which may make it more beneficial for you to sell earlier." This is how a consulting engagement in India works. If you are registered for Service Tax and have a service tax number, no tax is deducted at source and you have to pay 12.36% to service tax department during filing (once a quarter). If you do not have Service tax number i.e. not registered for service tax, the company is liable to deduct 10% at source and give the same to Income Tax Dept. and give you a Form-16 at the end of the financial year. If you fall in 10% tax bracket, no further tax liability, if you are in 30%, 20% more needs to be paid to Income Tax Dept.(calculate for 20% tax bracket). The tax slabs given above are fine. If you fail to pay the remainder tax (if applicable) Income Tax Dept. will send you a demand notice, politely asking you to pay at the end of the FY. I would suggest you talk to a CA, as there are implications of advance tax (on your consulting income) to be paid once a quarter. This is taxable in India. You need to declare the income and pay taxes accordingly Prachi - While most non-resident aliens are not allowed to claim the standard deduction here are some exceptions: IRS Law under Article 21: ARTICLE 21 Payments Received by Students and Apprentices This falls under the U.S.A.-India Tax Treaty. Sources: I hope this helps. So, yes, I do believe you would be able to claim the standard deduction, although it's always good to check with a tax adviser. I am from India. I visited US 6-8 times on business VISA and then started 2 Member LLC. Myself and My wife as LLC Members. We provide Online Training to american students from India. Also Got EIN number. Never employed any one. Do i need to pay taxes? Students from USA pays online by Paypal and i am paying taxes in India. Do i need to pay Taxes in US? DO i need to file the Tax returns? Please guide me. I formed LLC in 2010. I opened an Office-taken Virtual office for 75 USD per month to open LLC in 2010. As there is physical virtual address, am i liable for US taxes? All my earning is Online, free lancing. Yes you need to pay taxes in India. Show this as other income and pay tax according to your tax bracket. Note you need to pay the taxes quarterly if the net tax payable is more than 10,000. I still have my bank account active in usa. Can my company legally   deposit my salary in my bank account? Of course they can. Where they deposit is of no consequence (in the US, may be in India). It is who they deposit it for that matters. You need to file form W8 with the company, and they may end up withholding portion of that pay for IRS. You'll need to talk to a tax adviser in India about how to report the income back at home, and you may need to talk to a tax adviser in the US about what to do if the company does indeed remit withholding from your earnings. There might be a problem. Some reporting paperwork will have to be done for the IRS, obviously, but technically it will be business income zeroed out by business expense. Withholding requirements will shift to your friend, which is a mess. Talk to a licensed tax adviser (EA/CPA) about these. But the immigration may consider this arrangement as employment, which is in violation of the visa conditions. You need to talk to an immigration attorney. You can and are supposed to report self-employment income on Schedule C (or C-EZ if eligible, which a programmer likely is) even when the payer isn't required to give you 1099-MISC (or 1099-K for a payment network now). From there, after deducting permitted expenses, it flows to 1040 (for income tax) and Schedule SE (for self-employment tax). See https://www.irs.gov/individuals/self-employed for some basics and lots of useful links. If this income is large enough your tax on it will be more than $1000, you may need to make quarterly estimated payments (OR if you also have a 'day job' have that employer increase your withholding) to avoid an underpayment penalty. But if this is the first year you have significant self-employment income (or other taxable but unwithheld income like realized capital gains) and your economic/tax situation is otherwise unchanged -- i.e. you have the same (or more) payroll income with the same (or more) withholding -- then there is a 'safe harbor': if your withholding plus estimated payments this year is too low to pay this year's tax but it is enough to pay last year's tax you escape the penalty. (You still need to pay the tax due, of course, so keep the funds available for that.) At the end of the first year when you prepare your return you will see how the numbers work out and can more easily do a good estimate for the following year(s). A single-member LLC or 'S' corp is usually disregarded for tax purposes, although you can elect otherwise, while a (traditional) 'C' corp is more complicated and AIUI out-of-scope for this Stack; see https://www.irs.gov/businesses/small-businesses-self-employed/business-structures for more. Before answering specific question, you are liable to pay tax as per your bracket on the income generated. I work with my partner and currently we transfer all earning on my personal bank account. Can this create any issue for me? If you are paying your partner from your account, you would need to maintain proper paperwork to show the portion of money transferred is not income to you. Alternatively create a join Current Account. Move funds there and then move it to your respective accounts. Which sort off account should be talk and by whose name? Can be any account [Savings/Current]. If you are doing more withdrawls open Current else open Savings. It does not matter on whos name the account is. Paperwork to show income matters from tax point of view. What should we take care while transfering money from freelance site to bank? Nothing specific Is there any other alternative to bank? There is paypal etc. However ultimately it flows into a Bank Account. What are other things to be kept in mind? Keep proper record of actual income of each of you, along with expenses. There are certain expenses you can claim from income, for example laptop, internet, mobile phone etc. Consult a CA he will be able to guide and it does not cost much.