How to set up as an independent contractor in India

Have you had enough of working for others? Are you ready to go it alone and make a living on your own terms?

If so, India is an ideal location to start your self-employed journey — especially with internal hiring rates on the decline. 

Whether you want to set up shop in the bustling metropolis of Mumbai, the colorful markets of Delhi, or the tranquil coastlines of Goa, there’s plenty of energy to be harnessed in this unique and exciting country.

Before you get started, you’ll need to get to grips with the legal requirements for self-employment. Specifically, you’ll want to know how to:

• Register your business in India

• Avoid misclassification as an employee

• Create compliant contracts that protect you

• Invoice and collect payments from around the world

In this article, we cover all these things. We also help you navigate your tax obligations as a self-employed professional and discuss some of the other risks and liabilities to consider. So, in the true spirit of jugaad, let’s get started!

First, let’s define independent contractors in India.

What is an independent contractor according to Indian law? 

Independent contractors are workers who provide paid services (or products) to another party. 

For example, a company might outsource work to a software developer, a translator, or a freelance writer instead of hiring someone in-house. All of these roles are examples of independent contractors. 

Independent contractors are classified differently than employees. They’re typically not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, they have more freedom and flexibility in the way they work.

See also: Why businesses hire contractors vs. international employees

How is an independent contractor different from an employee? 

In India, the law doesn’t explicitly differentiate between employees and contractors. The courts review any disputes on a case-by-case basis. 

However, you’re generally considered an independent contractor if you:

• Determine your own work schedule and location

• Work without direction or supervision

• Supply and use your own tools, materials, and equipment

• Can perform work for other companies simultaneously

• Set your own pay rate

• Can delegate or subcontract work

There are a lot of key benefits to being an independent contractor in India. You can usually charge higher rates, be more selective about the work you do, choose who you work for, and work from different locations.

However, there are also some downsides to consider. You must manage all your invoicing, ensure you comply with local regulations, and handle your own taxes. 

That said, there are tools out there that make this process easier. Use our Freelancer Hub to manage clients, organize contracts, create invoices, and get paid — all from one place. 

Type of business registration in India

To begin working as an independent contractor in India, you’ll first need to choose a formal structure for your business. The most popular business models include the following:

Sole proprietorship 

A sole proprietorship has a simple structure that’s ideal for independent, individual contractors. You have full control of the enterprise, although there is no legal separation between you (the owner) and the business. You’re personally responsible for all its debts and liabilities. 

You can alternatively create a One Person Company (OPC) to mitigate this risk, which means forming a separate legal entity. However, your legal and administrative obligations increase significantly with an OPC. 

Here’s how the two compare:

Find out more about being a sole proprietor or an OPC in this full breakdown from the Ministry of Corporate Affairs. 

General partnership 

A general partnership is a simple partnership agreement. Again, there’s no legal separation between the individual and the business. You and your partners are personally responsible for any debts and liabilities. 

To mitigate this, you can create a Limited Liability Partnership (LLP), which creates a separate legal entity. In an LLP, the liability of each partner (anyone who runs the LLP) is limited to a pre-agreed-upon contribution. This means you’re not wholly responsible for possible debts and liabilities.  

Private limited company (PLC) 

In India, a PLC is a formal legal entity that’s separate from you, the individual. Like an LLP, a PLC offers limited liability protection. 

An example of a PLC would be Google India Pvt. Ltd., a subsidiary of Google LLC. Google India Pvt. Ltd. is a PLC in its own right, meaning that any liabilities that arise for Google India Pvt. Ltd. don’t affect Google LLC. 

All income and losses are attributed to the company as opposed to you personally (i.e., you are only liable for the capital you invest in the company).

How to set up a sole proprietorship in India

Most independent contractors choose the sole proprietorship model as it’s fairly simple to set up and operate. Plus, a lot of the other models require multiple partners or leaders. If it’s just you, a sole proprietorship may be your best bet. 

If you opt for sole proprietorship, you don’t need to complete any legal formalities. You just need a Personal Account Number (PAN) for taxes, an Aadhaar card number, and a bank account for receiving payments. 

However, if you work in a regulated field (such as healthcare, finance, or food handling), you may need to obtain a relevant business license or permit from the state or central government authorities. 

Consider your business name, too. As a sole proprietor, you operate the business under your own name. If you use an assumed name (i.e., a Doing Business As), you need to register it with the state authorities.

Note that if you expect to earn over ₹2 million (around $25,000) in your first year, you also need to register for goods and services tax (GST). 

If you practice a so-called liberal profession, such as medicine, law, or architecture, you may also need to register for Professional Tax (PT). PT is issued and collected by the state governments in India. How you pay and the amount you owe varies from state to state, with some states not requiring it at all. 

If you need a hand figuring out the logistics, Remote’s global HR experts can help you figure out exactly what tax you owe, how to pay it, and when it’s due.

How do I get paid as an independent contractor in India?

As an independent contractor, it’s down to you to handle your invoices and payment collection. This means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

• Bank transfers

• Direct deposits

• Paper checks

• Money orders

• Virtual wallets

• Digital transfer services like PayPal and Wise

These methods all have their own pros and cons. 

For instance, bank and digital transfers can be pretty quick, but often come with hefty service fees. And if you have clients in other countries besides India, the payment collection process can be even more complicated.

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in Indian rupees — and with no hidden fees. Learn more about how our platform can help.

Independent contractor taxes in India

As an independent contractor, you’re responsible for filing and paying your own taxes. 

The good news is that, as a sole proprietor, you don’t have to fill out a separate tax return or pay additional corporate taxes. Instead, you pay personal income tax on your business profits using the ITR-3 form.

In India, personal income is taxed at slab rates, indicating how much you must pay. You must file your tax return by July 31 each year (or October 31 if you’re subject to an audit). If you miss this deadline, you could receive a fine between ₹1,000 and ₹5,000.

In most cases (i.e. if you’re likely to earn more than ₹10,000 — around $125 — in annual taxable income), you must make your tax payments in advance on a quarterly basis.

Depending on your business activity and your location, you might also need to pay other taxes. The Indian government provides a full breakdown of its tax system.

On the flip side, you can claim tax deductions on multiple business expenses, including:

• Business travel

• Rent and leasing costs for business premises

• Utility bills

• Advertising and marketing

• Business meals

• Insurance premiums

VAT information for independent contractors in India 

As previously mentioned, you must register for and charge your clients GST (a de facto value added tax, also known as VAT) if your business earns more than ₹2 million ($25,000) in a year.

In India, GST rates are split into five main brackets, depending on the goods or services being provided:

• 28%

• 18%

• 12%

• 5%

• 0%

Different services fit within different brackets, which you can find on the Ministry of Finance website. Or reach out to Remote HR Management, and one of our local experts will figure it out for you! 

Top 3 considerations for independent contractors in India 

Before launching as an independent contractor in India, there are a few things to think about. Here’s what to consider to ensure you comply with the country’s regulations: 

1. Liability 

As a sole proprietor, you’re personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Indian and international clients.

2. Accounting requirements 

India has slightly more stringent and complex accounting requirements for sole proprietors than many other countries. Therefore, speaking with a qualified accountant when setting up your business is a good idea.

If your annual business turnover exceeds ₹10 million (around $125,000) or ₹5 million if you’re a liberal professional, your accounts must also be audited. As a result, you must keep accurate and organized records of all your client invoices and business expenses in line with India’s Income Tax Act.

3. Ensuring correct classification

Independent contractors are classified differently to employees in India. Many of the protections and benefits employees enjoy don’t typically apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client. 

As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.

If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

Download

How do I ask the company I’m working with to convert me to an employee in India?

Open a dialogue with your client and carefully discuss the benefits (and any compliance risks) of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Indian law.

4 ways Remote makes life easier for contractors and their clients

There’s a lot to take on board when setting up as an independent contractor in India. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating all of your clients’ different invoicing, approvals, and payments systems as an international contractor can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Indian rupees hassle-free, without any hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Indian laws, ensuring that you avoid penalties and stay compliant. Our legal experts also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you don't have to rely on spreadsheets or other manual tools to invoice for payments. We remove the inaccuracies and delays caused by archaic processes and manual management.

Our platform lets you automatically create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Tax management

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management and avoid tax implications by compiling data about your income based on your invoices and payments received.

How to become a freelancer in India with Remote 

Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract you from what you really want to be doing: helping your clients, delivering great work, and getting paid on time.

With a stable and trusted platform like Remote, you can manage these obligations quickly and efficiently. We can help you:

• Avoid intermediary fees and delays with international client payments

• Draft compliant contracts for both Indian and foreign clients

• Enhance your invoice management and avoid manual processes

• Comply with local labor laws regarding work practices

Remote makes it quick, simple, and seamless to get started as an independent contractor — no matter where you are in the world. Learn more about how our expertise can save you time and resources today.