Remote Work for Foreign Companies: How is Your Salary Taxed in India?

If you are physically working from India for a foreign employer, India has the right to tax your salary – regardless of where your employer is based or in which currency you are paid. Under Article 16 of the India–US Double Taxation Avoidance Agreement (DTAA), employment income is taxable in the country where the work is actually exercised, which in your case is India. Since a foreign employer with no Indian presence typically deducts no Indian TDS, you are personally responsible for discharging advance tax on that income through the year.

Also read-Why Can’t I Claim GST ITC on Cars, Staff Lunches & Office Renovation?

What are the Key Takeaways for Taxing Foreign Salary?

• Salary is taxed where you physically work – if you are sitting in India, India has the primary taxing right under most DTAAs, including Article 16 of the India–US treaty.
• If you are a Resident of India under Section 6 of the Income-tax Act, 1961, your worldwide income is taxable in India, including foreign salary.
• A foreign employer with no Indian permanent establishment usually deducts no TDS – the entire tax compliance shifts to you.
• You must pay advance tax in quarterly instalments as per Section 211 of the Income-tax Act, 1961; failure attracts interest under Sections 234B and 234C.
• If tax is also paid abroad on the same income, you can claim Foreign Tax Credit under Section 90 read with Rule 128 of the Income-tax Rules, 1962, subject to prescribed conditions and documentation.
• Foreign income must be converted to Indian rupees using the telegraphic transfer buying rate as prescribed under Rule 115 of the Income-tax Rules, 1962.

Why Does India Have the Right to Tax My Salary When My Employer Is in the US?

The core principle is straightforward – salary is taxed where the employment is physically exercised, not where the employer is incorporated or where the money originates. If you are working from Bengaluru, India has the primary taxing right over that income.

Under Article 16 of the India–US Double Taxation Avoidance Agreement (DTAA), remuneration earned by a resident of India from employment is taxable only in India, unless the employment is actually exercised in the United States. Since you are physically present in India while working, the employment is exercised here – so Article 16 assigns the sole taxing right to India, even though your employer and your salary payments are American.

There is a narrow carve-out. If you travel to the US and work there, the US may tax the salary for those specific days only if you are present in the US for more than 183 days in the relevant taxable year, or your remuneration is paid by or borne by a US-resident employer or a US permanent establishment. For an Indian resident working remotely from India for a US company, none of those triggers is typically met – so India alone taxes the salary.

Additionally, if you qualify as a Resident of India under Section 6 of the Income-tax Act, 1961 for the financial year, India taxes your worldwide income regardless of source. So from both angles – the DTAA and domestic residency rules – this salary is taxable in India.

What Happens When My Foreign Employer Deducts No Indian TDS?

When you work for an Indian employer, TDS is deducted every month under Section 192 of the Income-tax Act, 1961 and you receive a net salary. A foreign employer with no Indian presence typically deducts nothing. The amount that hits your bank account is gross – the tax liability still exists, and it is your responsibility to discharge it.

You must pay advance tax in quarterly instalments as per the schedule under Section 211 of the Income-tax Act, 1961. The due dates for Financial Year 2026-27 (Assessment Year 2027-28) are 15 June (15% cumulative), 15 September (45% cumulative), 15 December (75% cumulative), and 15 March (100% cumulative) of the financial year. If you miss these instalments or pay less than required, interest is levied under Section 234C for deferment of advance tax and under Section 234B for shortfall in payment of advance tax.

Practically, this means you should set aside roughly a third of each payslip and pay quarterly. Waiting until the return filing date to pay the entire tax burden adds months of avoidable interest cost. If you have also paid tax abroad on the same income, you can claim Foreign Tax Credit under Section 90 read with Rule 128 of the Income-tax Rules, 1962, but you must claim it with proper documentation – the relief is limited to the lower of the foreign tax paid and the Indian tax attributable to that income.

How Much Tax Will I Actually Pay on My Foreign Salary?

Your tax outflow depends on which regime you choose. Under Section 115BAC of the Income-tax Act, 1961, the new tax regime is the default for Financial Year 2026-27 (Assessment Year 2027-28). The old regime remains available only if you explicitly opt out and forgo certain exemptions and deductions. Below are the tax slabs for both regimes as applicable for Assessment Year 2027-28 (Financial Year 2026-27).

New Tax Regime (Default) for Individuals (FY 2026-27 / AY 2027-28)

Old Tax Regime (Optional) for Individuals (FY 2026-27 / AY 2027-28)

Under the new regime, a rebate of up to ₹25,000 is available under Section 87A if total income does not exceed ₹7,00,000, effectively making income up to ₹7 lakh tax-free. Under the old regime, the rebate under Section 87A is ₹12,500 for income up to ₹5,00,000. Surcharge applies at 10% for income between ₹50 lakh and ₹1 crore, 15% between ₹1 crore and ₹2 crore, 25% between ₹2 crore and ₹5 crore, and 37% above ₹5 crore under the old regime. Under the new regime, surcharge is capped at 25% for income above ₹2 crore (for income other than certain specified incomes). Health and education cess of 4% applies on tax plus surcharge in both regimes.

Worked Example: Arjun’s Advance Tax on ₹30 Lakh Foreign Salary

Arjun earns the equivalent of ₹30,00,000 from his US employer in FY 2026-27, with no Indian TDS. Opting for the new regime under Section 115BAC, his tax computation is as follows:

• Up to ₹3,00,000: Nil
• ₹3,00,001 – ₹6,00,000 (₹3,00,000 @ 5%): ₹15,000
• ₹6,00,001 – ₹9,00,000 (₹3,00,000 @ 10%): ₹30,000
• ₹9,00,001 – ₹12,00,000 (₹3,00,000 @ 15%): ₹45,000
• ₹12,00,001 – ₹15,00,000 (₹3,00,000 @ 20%): ₹60,000
• ₹15,00,001 – ₹30,00,000 (₹15,00,000 @ 30%): ₹4,50,000

This gives a base tax of ₹6,00,000. Adding 4% health and education cess of ₹24,000, Arjun’s total tax liability is ₹6,24,000.

Under the advance tax schedule prescribed in Section 211 of the Income-tax Act, 1961, Arjun must pay this in four instalments: ₹93,600 by 15 June 2026 (15% cumulative), ₹2,80,800 by 15 September 2026 (45% cumulative), ₹4,68,000 by 15 December 2026 (75% cumulative), and the full ₹6,24,000 by 15 March 2027. If he waits until July 2027 to pay everything at filing time, he will owe the same ₹6,24,000 plus interest under Sections 234B and 234C – typically ₹25,000 to ₹40,000 of avoidable cost. Setting aside roughly a third of each payslip and paying quarterly keeps him compliant and interest-free.

How Do I Claim Foreign Tax Credit and Avoid Being Taxed Twice?

If you have genuinely paid tax in a foreign country on income that India is also taxing, you are not required to pay tax twice on the same amount. The Income-tax Act, 1961 provides for Foreign Tax Credit (FTC) under Section 90 read with Rule 128 of the Income-tax Rules, 1962, which allows you to claim credit for the overseas tax against your Indian tax liability on that income.

The relief is limited to the lower of the actual foreign tax paid and the Indian tax attributable to that income. For example, if you paid 20% tax abroad on a portion of your salary and the Indian rate on that same income works out to 25%, your FTC is capped at the 20% actually paid. You must claim this credit with proper documentation – every withholding statement, tax certificate, or payslip showing foreign tax deduction should be retained as proof.

For Financial Year 2026-27 (Assessment Year 2027-28), FTC is claimed by filing Form 67 on the income tax portal before the return is filed. The form must be filed before the due date of the return of income – if you miss this deadline, the credit may be denied even if you have valid foreign tax payments.

Social security contributions deducted abroad – such as US Social Security or Medicare taxes – are generally not creditable in India. Only income taxes paid to a foreign government typically qualify for FTC. If you are a US citizen or green-card holder, the US taxes your worldwide income under its domestic law (the “saving clause” in Article 1 of the India-US DTAA). In that scenario, both countries tax the same salary, and you rely on Article 25 of the DTAA (relief from double taxation) combined with India’s FTC mechanism to avoid paying twice.

What Foreign Assets and Income Must I Report in My Indian Return?

If you are a Resident and Ordinarily Resident (ROR) in India, you are required to disclose all foreign assets and foreign income in your Indian income tax return, regardless of whether tax is due on them. This reporting obligation is separate from the tax liability itself – even if your foreign salary is fully taxed and you owe no additional Indian tax, non-disclosure of foreign assets attracts heavy penalties.

Schedule FA of the income tax return requires you to report foreign bank accounts, foreign shares and securities (including ESOPs and RSUs held in overseas brokerage accounts), immovable property held outside India, and any other foreign assets. The reporting must include peak balance during the year for bank accounts, and cost and market value for shares and other assets. For ESOPs and RSUs granted by a foreign employer, the taxable event occurs at vesting or exercise – the difference between the fair market value on the vesting date and the exercise price is taxed as salary income in India. When you subsequently sell those shares, any further appreciation is taxed as capital gains.

Foreign income must be converted to Indian rupees using the telegraphic transfer buying rate as prescribed under Rule 115 of the Income-tax Rules, 1962. For salary income, the specified date is the last day of the month immediately preceding the month in which the salary is due or paid in advance or in arrears. Using the correct conversion rate matters – an incorrect rate can lead to under-reporting and subsequent scrutiny.

Non-disclosure of foreign assets can attract a penalty of ₹10 lakh under Section 271FAA of the Income-tax Act, 1961, even if no tax is evaded. Given that the Income Tax Department receives information through automatic exchange of information frameworks, foreign bank accounts and share holdings are increasingly visible to the tax authorities. Maintaining a simple log of your foreign accounts, ESOP vesting dates, and travel days abroad is the single most practical step you can take to stay compliant.

How Does Foreign Tax Credit Work When Both Countries Tax the Same Salary?

If you are a US citizen or green-card holder, the United States taxes your worldwide income regardless of the treaty under the “saving clause” in Article 1 of the India–US DTAA. Both countries then tax the same salary, and you rely on Article 25 (relief from double taxation) read with Section 90 of the Income-tax Act, 1961 to avoid paying twice. For Indian residents who are not US persons, this scenario typically arises only when you physically work abroad and that country exercises its taxing right under the treaty’s 183-day rule.

Foreign Tax Credit is claimed under Section 90 read with Rule 128 of the Income-tax Rules, 1962. The relief is the lower of: (a) the foreign tax actually paid on that income, or (b) the Indian tax attributable to that income. You must file Form 67 before filing your return, along with proof of foreign tax paid – typically a withholding statement or tax return from the foreign country.

Worked Example: Priya’s Foreign Tax Credit on Split-Year Income

Priya, an Indian resident, earns ₹40,00,000 from her US employer in FY 2026-27. She spent 45 days physically working in the US, and the US withheld USD 3,200 (approximately ₹2,68,800 at the TT buying rate under Rule 115 of the Income-tax Rules, 1962) as federal tax on the attributable income. India taxes her worldwide income. Under the new regime, her Indian tax on ₹40,00,000 is computed as follows:

• Up to ₹3,00,000: Nil
• ₹3,00,001 – ₹6,00,000 (₹3,00,000 @ 5%): ₹15,000
• ₹6,00,001 – ₹9,00,000 (₹3,00,000 @ 10%): ₹30,000
• ₹9,00,001 – ₹12,00,000 (₹3,00,000 @ 15%): ₹45,000
• ₹12,00,001 – ₹15,00,000 (₹3,00,000 @ 20%): ₹60,000
• ₹15,00,001 – ₹40,00,000 (₹25,00,000 @ 30%): ₹7,50,000

This results in a base tax of ₹9,00,000. Adding 4% cess of ₹36,000, Priya’s total Indian tax liability is ₹9,36,000.

The US-taxed portion of her income is 45/365 of ₹40,00,000 = ₹4,93,151. The Indian tax attributable to this slice of income is calculated by applying the average Indian tax rate to this portion. Average Indian tax rate = (Total Indian Tax / Total Income) = (₹9,36,000 / ₹40,00,000) = 23.4%. Indian tax attributable to the US-taxed portion = ₹4,93,151 * 23.4% = ₹1,15,397.33.

Priya can claim Foreign Tax Credit for the lower of the actual foreign tax paid (₹2,68,800) and the Indian tax attributable to that income (₹1,15,397.33). Therefore, her FTC will be ₹1,15,397.33. Her net Indian tax liability after FTC will be ₹9,36,000 – ₹1,15,397.33 = ₹8,20,602.67.

ESOPs and RSUs granted by a foreign employer are taxable in India at two points. First, at vesting (or exercise, for options), the difference between the fair market value on the vesting date and the exercise price is taxed as salary income under Section 17(2) of the Income-tax Act, 1961. Second, when you sell the shares, the gain between the sale price and the FMV at vesting is taxed as capital gains – short-term or long-term depending on the holding period. Both events must be reported in your Indian return, even if no TDS was deducted abroad.

If you are a Resident Ordinarily Resident (ROR) under Section 6 of the Income-tax Act, 1961, you must disclose all foreign assets and income in Schedule FA of your Income Tax Return (ITR). This includes foreign bank accounts, foreign shares (including vested RSUs), and any foreign immovable property.

Non-disclosure attracts a penalty of ₹10,00,000 per financial year under Section 42 or Section 43 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. This penalty is separate from the tax and interest on the underlying income and applies even if the foreign income has been fully taxed and reported elsewhere.

One more trap: if you spend long stretches working from the foreign country during the year, your residency status can shift. Under Section 6(1) of the Income-tax Act, 1961, an individual who is in India for fewer than 182 days in the previous year becomes a non-resident (subject to the exceptions for Indian citizens leaving for employment).

That changes everything – from worldwide taxation to Indian-sourced-only taxation, and from Schedule FA disclosure to exemption from it. If you are splitting the year across two countries, track your travel days meticulously and determine your residency status before filing.

What Immediate Steps Should You Take for Tax Compliance?

If you are currently working from India for a foreign employer, these steps will keep you compliant and avoid unnecessary interest costs:

• Confirm your residential status under Section 6 of the Income-tax Act, 1961 for FY 2026-27. If you qualify as a Resident, your worldwide income – including foreign salary – is taxable in India. If you are a Non-Resident, only income earned or received in India is taxable.
• Estimate your total tax liability for the year based on your expected foreign salary, converted to Indian rupees using the telegraphic transfer buying rate as prescribed under Rule 115 of the Income-tax Rules, 1962.
• Pay advance tax on time – 15% by 15 June, 45% by 15 September, 75% by 15 December, and 100% by 15 March of the financial year. Missing these dates triggers interest under Sections 234B and 234C.
• Maintain a day-count log of any travel abroad for work. If you physically work in the foreign country for extended periods, that country may acquire taxing rights over the salary for those days under the applicable DTAA.
• Collect withholding statements from your foreign employer showing any tax deducted abroad. You will need these to claim Foreign Tax Credit in India.
• File your return in the correct form – typically ITR-2 or ITR-3 depending on your income composition. Non-residents eligible for certain exemptions may use ITR-1, but most remote employees with foreign salary will need ITR-2 or ITR-3.
• Disclose all foreign assets including foreign bank accounts and shares in Schedule FA of your return if you are a Resident. Non-disclosure attracts heavy penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, separate from the income tax itself.

Frequently Asked Questions

Sources

• TaxGuru — Working in India for a Foreign Employer: How Your Salary Is Taxed
• Income Tax India — Taxation of Non-Resident Individuals
• Income Tax India — Tax Treatment of Foreign Income of Residents
• Income Tax India — Other Non-Resident Provisions
• TaxGuru — Section 10(6): Remuneration Received by Non-Citizens
• Income Tax Portal — Returns Applicable for Individuals
• Income Tax India — Benefits Allowable to Non-Residents
• Income Tax India — International Businesses: Sections to be Remembered

Take the next step: If you are currently working remotely from India for a foreign employer, review your advance tax position for FY 2026-27 immediately. Calculate your estimated tax liability, set up quarterly payments, and gather your foreign withholding statements for Foreign Tax Credit. A one-hour consultation with a cross-border tax practitioner can save you lakhs in interest and penalty costs down the line.