How to manage remote contractors based outside India

Engaging contractors who are based outside India — for software development, design, research, or other services — introduces cross-border compliance complexity around foreign payments, tax deduction, and FEMA regulations. Getting this right protects both the company and the relationship.

Foreign remittance under FEMA: payments to overseas contractors must comply with FEMA (Foreign Exchange Management Act). Payments for services are generally permitted under the Current Account, but must be accompanied by Form 15CA (a declaration by the remitter) and in many cases Form 15CB (a certificate from a Chartered Accountant certifying the tax position). Your bank will require these documents before processing the foreign payment.

TDS on foreign payments: under Section 195 of the Income Tax Act, payments to non-residents for services rendered in India are subject to TDS at the applicable rates. However, if the services are performed entirely outside India and the income is not 'sourced' in India under the relevant DTAA (Double Taxation Avoidance Agreement), TDS may not apply. This is a technical determination that requires CA guidance for each country and type of service.

GST on imported services: services imported from outside India are subject to GST under the reverse charge mechanism — the Indian company pays 18% GST on the value of imported services and can claim the same amount as input tax credit (if registered for GST). The net effect is neutral for GST-registered companies but the compliance step must be followed.

Contract currency and terms: contracts with foreign contractors should clearly specify the currency of payment (usually USD or the contractor's local currency), the payment method (SWIFT wire transfer, Wise, or other permitted mechanisms), and the governing law and jurisdiction for disputes. Including an Aadhaar/PAN equivalent identification for the contractor (their national ID and tax number) facilitates the Form 15CA/CB process.