Indian citizen working from India as freelancer for U.S.-based company. How to report the income & pay tax in India?
You can receive money directly into your savings bank account. It is perfectly legal. FYI the Bank as part of regulation would report this to RBI. As the funds are received for the services you have rendered, You are liable to pay tax on the income. The income is taxed as professional income similar to the income of Doctors, Lawyers, Accountants etc. If you are paying your colleagues, it would be treated as expense. Not only this, you can also treat any phone calls you make, or equipment your purchase [laptop, desk etc] as expense. The difference become your actual income and you would be taxed as per the rate for individuals. It's advisable you contact an accountant who would advise you better for a nominal fee [few thousand rupees] and help you pay the tax and file the returns. With or without accountant It is very important for you to record all payments and expenses in a book of accounts. There is no reason for you to open a firm. However, it will help you, if you operate separate bank account for business and personal purposes. You can run your business as proprietorship business. Your inward remittance is your income. You can deduct payment made to your colleagues as salary. You should pay them by way of cheques or bank transfer only. You are also entitled to deduct other business expenses provided you keep proper receipt of the same such as broadband connection charges, depreciation on equipment and more importantly, rent on your house. If your total receipt from such income exceeds INR 60,00,000 you will need to withhold tax on payment made to your colleagues as also subject to audit of your accounts. If you want to grow your business, suggest you should take an Import / Export Code in your own name.  You can put any further question in this regard.
Like for example I use transferwise to send $x to my dad's account in India, would it show my name as the depositor ? That would depend from bank to bank, it may or may not show your name. Would it be considered as income for my dad ? Assuming your parents are Indian Residents for tax purposes. No. It would be considered as Gift. Gifts between father and son are tax free in India and there is no limit. Any special care/precaution to take before using such services ? Not really. Just to be safe, keep a copy of the transfer instruction / details of debit to you account etc, so that if there is enquiry you have all the data handy. Edit: Clarifying the comment, if you are Resident Alien in US for tax purposes, you would be liable to Gift Tax [Not your parents as they are Indian Residents and would follow Indian tax rules]. As per IRS the liability of Gift tax is on Donor subject to limit of $14000 per year per Donee. So you and your wife can gift your father and mother $14000 each. i.e. $56000 each year. Anything more will be taxable or can be reduced from the overall estate limit. I find that there are two violation of law , prima facie , if someone earns money by depositing in the online account and then not reporting it ( including in his total income for the year ) and not bringing in India. Income Tax Act violation 1. It is simply comcealment liable for penalty & prosecution under I.T.Act. 2. You should know that anyone who is resident of India as per income Tax Act and having taxable income ( gross total income exceeding exemption limit) will have to fill up the column in his/her income tax return whether  Previously these column were not in the Income Tax Return. So , now anyone who is liable to file return of Income can be tried for false return if he has hiddne assets aborad. 2. FEMA violation RBI  permits remittance under Liberalized Remittance Scheme. However this scheme can not be used for certain purpose . It is important to examine whether RBI prohibits use of remittance for any entity or business you have described. You can read following FAQ on RBI site Q. 30. What are the prohibited items under the Scheme? Ans.  The remittance facility under the Scheme is not available for   the following: i) Remittance for any purpose specifically prohibited under Schedule-I   (like purchase of lottery tickets/sweep stakes, proscribed magazines,   etc.) or any item restricted under Schedule II of Foreign Exchange   Management (Current Account Transactions) Rules, 2000; ii) Remittance from India for margins or margin calls to overseas   exchanges / overseas counter-party; iii) Remittances for purchase of FCCBs issued by Indian companies in   the overseas secondary market; iv)  Remittance for trading in foreign exchange abroad; v) Remittance by a resident individual for setting up a company   abroad; vi) Remittances directly or indirectly to Bhutan, Nepal, Mauritius and   Pakistan; vii) Remittances directly or indirectly to countries identified by the   Financial Action Task Force (FATF) as “non co-operative countries and   territories”, from time to time; and viii) Remittances directly or indirectly to those individuals and   entities identified as posing significant risk of committing acts of   terrorism as advised separately by the Reserve Bank to the banks. You will have to examine , if the remittance was NOT done for purpose not allowed by RBI under LRS . If you clear this , you can say there is no violation and your violation is restricted to I.T.Act only. First, yes, your LLC has to file annual taxes to the US government.  All US companies do, regardless of where their owners live.  Second, you will also probably be liable to personally file a return in the US and unless the US has a tax treaty with India (which I don't believe it does) you may end up paying taxes on your same income to both countries.  Finally, opening a US bank account as a foreign citizen can be very tricky. You need to talk to a US accountant who is familiar with Indian & US laws. "My tax preparing agent is suggesting that since the stock brokers in   India does not have any US state ITINS, it becomes complicated to file   that income along with US taxes Why? Nothing to do with each other. You need to have ITIN (or, SSN more likely, since you're on H1b). What brokers have have nothing to do with you. You must report these gains on your US tax return, and beware of the PFIC rules when you do it. He says, I can file those taxes separately in India. You file Indian tax return in India, but it has nothing to do with the US. You'll have to deal with the tax treaty/foreign tax credits to co-ordinate. How complicated is it to include Indian capital gains along with US   taxes? ""How complicated"" is really irrelevant. But in any case - there's no difference between Indian capital gains and American capital gains, unless PFIC/Trusts/Mutual funds are involved. Then it becomes complicated, but being complicated is not enough to not report it. If PIFC/Trusts/Mutual funds aren't involved, you just report this on Schedule D as usual. Did anybody face similar situation More or less every American living abroad. Also the financial years are different in India and US Irrelevant." The committee folks told us Did they also give you advice on your medication? Maybe if they told you to take this medicine or that you'd do that? What is it with people taking tax advice from random people? The committee told you that one person should take income belonging to others because they don't know how to explain to you which form to fill. Essentially, they told you to commit a fraud because forms are hard. I now think about the tax implications, that makes me pretty nervous. Rightly so. Am I going to have to pay tax on $3000 of income, even though my actual winning is only $1000? From the IRS standpoint - yes. Can I take in the $3000 as income with $2000 out as expenses to independent contractors somehow? That's the only solution. You'll have to get their W8's, and issue 1099 to each of them for the amounts you're going to pay them. Essentially you volunteered to do what the award committee was supposed to be doing, on your own dime. Note that if you already got the $3K but haven't paid them yet - you'll pay taxes on $3K for the year 2015, but the expense will be for the year 2016. Except guess what: it may land your international students friends in trouble. They're allowed to win prizes. But they're not allowed to work. Being independent contractor is considered work. While I'm sure if USCIS comes knocking, you'll be kind enough to testify on their behalf, the problem might be that the USCIS won't come knocking. They'll just look at their tax returns and deny their visas/extensions. Bottom line, next time ask a professional (EA/CPA licensed in your State) before taking advice from random people who just want the headache of figuring out new forms to go away. If your gross income is only $3000, then you don't need to file: https://www.irs.gov/pub/irs-pdf/p501.pdf That said, pay careful attention to: https://www.irs.gov/individuals/international-taxpayers/taxpayers-living-abroad You should be reporting ALL income, without regard to WHERE you earned it, on your US taxes. Not doing so could indeed get you in trouble if you are audited. Your level of worry depends on how much of the tax law you are willing to dodge, and how lucky you feel. I have some more inputs to investigate: India has dual tax avoidance treaty signed with european countries so that NRIs dont pay tax in both countries. Please check if India has some agreement with Swiss Also for freelance job that is delivered from India, u need to make sure where you have to pay taxes as you are still in India so the term NRI will not hold good here. Also, if Swiss company is paying tax there, and you are  a freelancer from India(resident in india) how to tax filing /rate etc has to be investigated. Also, can you apply for tax back from swiss( a portion of tax paid can be refunded eg: in Germany) but I dont know if this is true for Freelancers and also for people out side SWISS. Bip You need to fill out form 8606.  It's not taxable, but you still need to report it