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. 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 though, you’ll need to get to grips with the legal requirements of 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’ll cover all these things. We’ll also help you navigate your tax obligations as a self-employed worker, and discuss some of the other risks and liabilities you should be aware of. So, in the true spirit of jugaad, let’s get started!

First, it’s important to clarify how India defines independent contractors.

What is an independent contractor according to Indian law?

Independent contractors are workers who provide paid services (or products) to another party. However, they are classified differently to employees, and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in the way they work.

See also: Why businesses hire contractors vs. international employees

In India, the law no longer explicitly defines the difference between employees and contractors; any disputes are reviewed by the courts on a case-by-case basis. However, in practice, you are 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

• Are able to perform work for other companies simultaneously

• Set your own pay rate

• Are able to delegate or subcontract work

When you work with clients, it’s important to be correctly classified to avoid penalties and fines.

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. Some of the most popular models include:

• Sole proprietorship: A simple structure that is 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 are personally responsible for all its debts and liabilities. You can alternatively create a One Person Company (OPC) to mitigate this risk, although your legal and administrative obligations will increase significantly.

• General partnership: A simple partnership agreement. Again, there is 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.

• Private limited company (PLC): A formal, legal entity that is separate from you, the individual. 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).

There are pros and cons to each of these structures, but most independent contractors choose the sole proprietorship model, as it is fairly simple to set up and operate.

If you opt for this structure, you don’t need to complete any legal formalities. 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, but if you opt to use an assumed (i.e. a Doing Business As (DBA)) name for marketing or branding reasons, you will 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 will also need to register for goods and services tax (GST). We will discuss GST further in the taxes section of this article.

If you practice a so-called liberal profession, such as medicine, law, or architecture, you may also need to register for Professional Tax. 

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. Unfortunately, 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 do not 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 in slab rates, indicating how much you will need to pay. You must file your tax return by July 31 each year (or 31 October if you are subject to an audit); if you miss this deadline, you will be subject to a fine of 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 may be required to pay other taxes, too. The Indian government provides a full breakdown of its tax system here.

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 will need to register for and charge your clients GST (a de facto value added tax (VAT)) if your business earns more than ₹2 million ($25,000) in a year.

In India, GST rates are split into four brackets (28%, 18%, 12%, and 5%) depending on the goods or services being provided.

Liability considerations for independent contractors in India

As a sole proprietor, you are 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.

Accounting requirements for independent contractors in India

India has slightly more stringent and complex accounting requirements for sole proprietors than many other countries. Therefore, it’s a good idea to speak with a qualified accountant when you’re setting up your business.

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

The dangers of contractor misclassification in India

As we’ve mentioned, independent contractors are classified differently to employees in India. Many of the protections and benefits employees enjoy do not 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 risks and benefits 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

As you can see, there’s a lot to take on board when setting up as an independent contractor. 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 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 stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you 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 by compiling data about your income based on your invoices and payments received.

Setting up as an independent contractor in India

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

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, 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

Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.