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Paying tax on western union money transfers?

Somasekar (None) (27 Points)

20 June 2012

Hi,

I have a question for CAs who are familiar with outsourcing rules and taxes.

I am entering into a contract with a US firm that would pay me about 20,000 USD per year for the IT/Development work that I would do for them. Now, I have a job already in India and this is more like a second job/part time job.

The US firm is a S-Corp and they are ready to pay me monthly about 1600+ USD through western union (payments under 900 USD or less than 50,000 INR). So, hopefully about 30 transactions per year. I would like to understand the tax implication for me for this kind of a payment. When I file my tax statement, I believe I will be in complete control of what I should show as income from this US pay as long as I receive under 50,000 INR cash payments? Or is this illegal or something?

What is the best practice here?

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7 Replies

gbalakrishnan (owner) (1373 Points)
Replied 20 June 2012

YOU WILL HAVE TO TAKE PERMISSION FOR FOREIGN INCOME FROM I T O CONCERNED AS YOU ARE A TAX PAYER AND IN FACT YOUR TOTAL INCOME IE BOTH INDIAN AND FOREIGN SHOULD BE SHOWN ON ROI THEN YOUR TOTAL INCOME IN RUPEE TERMS AFTER ALL YOUR $ INCOME CANNOT BE IN $ AND IT NEEDS TO BE CONVERTED WHEN YOUR BANKER RECEIVES THE $ INCOME FROM WESTERN UNION AFTER ALL YOU CANNOT KEEP SO MUCH $ WITH YOU WITHOUT PERMISSION OF RBI FOR FOREIGN FUNDS MANAGEMENT ACT AS YOU WILL INDEED PAY TAX ON THAT INCOME, AFTER ALL ALL FOREIGN EXCHANGE NEED TO BE ACCOUNTED OR IN YOUR NRI A/C IF YOU HAVE BEEN AN NRI OER ELSE YOU NEED TO DISCLOSE WHEN YOU GET CREDIT IN YOUR ACCOUNT IN YOUR BANK AS YOU CANNOT SPEND $ AS RESIDENT INDIAN!

ELSE YOU WILL INVITE TROUBLES UNDER MONEY LAUNDERING ACTS AS ALSO IN UNDER I T ACTS. SO BETTER GET EVERYTHING FIRST ASCERTAINED AND OBTAIN TAX OFFICER LETTER ON YOUR FOREIGN INCOME, ELSE YOU ARE INVITING TROUBLE AFTER ALL YOU ARE NOT A BUSINESS MAN BUT SOME PART TIME EMPLOYEE!

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Somasekar (None) (27 Points)
Replied 20 June 2012

Originally posted by : gbalakrishnan
	YOU WILL HAVE TO TAKE PERMISSION FOR FOREIGN INCOME FROM I T O CONCERNED AS YOU ARE A TAX PAYER AND IN FACT YOUR TOTAL INCOME IE BOTH INDIAN AND FOREIGN SHOULD BE SHOWN ON ROI THEN YOUR TOTAL INCOME IN RUPEE TERMS AFTER ALL YOUR $ INCOME CANNOT BE IN $ AND IT NEEDS TO BE CONVERTED WHEN YOUR BANKER RECEIVES THE $ INCOME FROM WESTERN UNION AFTER ALL YOU CANNOT KEEP SO MUCH $ WITH YOU WITHOUT PERMISSION OF RBI FOR FOREIGN FUNDS MANAGEMENT ACT AS YOU WILL INDEED PAY TAX ON THAT INCOME, AFTER ALL ALL FOREIGN EXCHANGE NEED TO BE ACCOUNTED OR IN YOUR NRI A/C IF YOU HAVE BEEN AN NRI OER ELSE YOU NEED TO DISCLOSE WHEN YOU GET CREDIT IN YOUR ACCOUNT IN YOUR BANK AS YOU CANNOT SPEND $ AS RESIDENT INDIAN! ELSE YOU WILL INVITE TROUBLES UNDER MONEY LAUNDERING ACTS AS ALSO IN UNDER I T ACTS. SO BETTER GET EVERYTHING FIRST ASCERTAINED AND OBTAIN TAX OFFICER LETTER ON YOUR FOREIGN INCOME, ELSE YOU ARE INVITING TROUBLE AFTER ALL YOU ARE NOT A BUSINESS MAN BUT SOME PART TIME EMPLOYEE!

I am sorry, I did not understand your response completely. Imagine that I am a 60 year old retired man who has a son in america and he sends me less than 50,000K INR every month for my expenses and I spend it here. You are saying that this is my income? and I need to pay tax for it? and notify IT department about it? I don't think that is the case and similarly, I am not a NRI, I do NOT have a permit to work in the US, I do not pay tax to US govt, and somebody sends me cash through western union (less than 50k in all transactions), and if IT department asks, I can't tell them that this is a loan and not income and I am entitled to spend it?

Ok, after reading your response again, what you are trying to say is that, western union will pay me dollars and not indian rupees? Are you sure about that? I thought they clearly said that they will pay in cash as long as the amount is less than 50,000 INR ?

Somasekar (None) (27 Points)
Replied 21 June 2012

guys, advice please.

MAYA. N (Accounts Officer) (68 Points)
Replied 21 June 2012

First of all, In case of one transfer at a time, Western Union can pay the amount in cash to you up to Rs. 50,000/- In case the amount exceeds Rs. 50,000/- they pay the amount by DD or by cheque to you. Now, RBI sanctioned 30 transactions in a year can be done in transfering amount from abroad in the name of one single person to meet domestic needs.

In your case, as you are entering into a contract with the US firm, the amount you are receiving from them is in the nature of business income, if there is no relationship of employer and employee is raising in this case, the income you are receiving is not salary income. Your income from job in India will be treated as salary income and income from business for the outsourcing of IT development work you are doing for US contract work. Together will come under computation of income tax in a particular year. This is Income tax procedure.

Now, up to 25,000 USD there is no need for RBI sanction or to get registered with STPI or with central excise department(now 100% EOU has to register with Central Excise department and not customs) for export of the IT work.

To be more secure, it is better to give your bank account no. and other bank details to the US firm to pay the amount from their end directly to your bank account by wire transfer or by e-net payment method specifying the nature of transfer like export of IT development work etc. For this you will receive FIRC (Foreign Inward Remittance Certificate) from your bank in which the details of transfer is mentioned.

Somasekar (None) (27 Points)
Replied 22 June 2012

Thank you MAYA.N for your answer. Much appreciated. Now from what you said:

"the amount you are receiving from them is in the nature of business income, if there is no relationship of employer and employee is raising in this case, the income you are receiving is not salary income"

My question here is, who determines this? Ok, I might sign and send a employment document with this US firm, (firstly, which is probably not valid because I do not have the permit to work for a US firm, anyway), but it doesn't state that I am on their payroll.

My question here is simple.. say the US firm pays me less than 25K per year, everytime they pay me less than 50,000 INR per transaction through westernUnion, now lets say that IT department notices this somehow and asks me where and why I am getting this money from - if I say its a loan from a friend, who is going to prove me wrong? I just want to understand the boundaries of how this stuff works.

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MAYA. N (Accounts Officer) (68 Points)
Replied 22 June 2012

Thank you for your response.

In simple words, the money you receive thru western money transfer is not taxable.

But these western money transfer agents can file their I.T. Return etc.,

They can give the details to RBI or concerned authorities.

While US firm, sending you the amount, they have to give sender's name, receipient name, etc.

Hence, if I.T. dept., comes to know of this amount, not necessary that they should know of this, you have to give details,

It is better not to mention as loan from your friend or relative as the sender's name is with the money transfer agent.

If you are a taxpayer, or filing Income tax return yearly, then the question arises the amount you receive from US for the job work to treat as salary or business income. And while filing the I.T. Return,If there is deposit in your savings bank account above Rs. 10 lac in a year that has to be disclosed in the Return.

As long as you are not in the payroll of the US firm, you are not an employee of that firm and the amount you are receiving is not salary.

But if your total income in a year exceeds Rs. 2 lac you have to payincome tax. for this, make some ivestments for tax savings and the balance amount will be taxable.

In my opinion, you file I.T. Return to be on secure part of your future.

Adil ady chishti (2 Points)
Replied 20 June 2019

What if i do not save this western union received money in bank. And i use all this cash in my daily use.and if i am not a tax payer liable. Will the it department still trace me.??