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Do I have to pay income tax in India???
Thread poster: Malin Norberg

Malin Norberg  Identity Verified
Local time: 12:48
English to Swedish
+ ...
Dec 2, 2013

Hi,

I have just had a very bad experience with an Indian translation company. I did a quite big translation project during the past months with them and sent an invoice for over 5000 dollars. I have received the payment and they have withdrawn a 20% of Indian income tax from the payment so I received much less than expected. On top of this I have to pay the income tax in my country.

Has anybody had the same experience? Is this legal? Why do I have to pay taxes in a country that is not my residence country?

Kind regards,

Malin


 

Niina Lahokoski  Identity Verified
Finland
Local time: 13:48
Member (2008)
English to Finnish
+ ...
No Dec 2, 2013

No, what the client did is not legal. You would only have to pay taxes in India (or any other country) if you were a resident or if your business was registered there. Unfortunately it looks like the client is trying to fool you.

 

Steven Segaert
Estonia
Local time: 13:48
Member (2012)
English to Dutch
+ ...
Not legal Dec 2, 2013

While it could happen that a country wants to tax you, there is an agreement between India and Spain to avoid double taxation (I assume you are located and tax resident in Spain).

Get a note from the Spanish tax office that you are taxed there on your world income, and forward a copy to the Indian client requesting the rest of your money.

If that doesn't help, ask them for official proof (a stamped document) that they have sent your money to their tax office.

Either they act in good faith and want to avoid having to pay your taxes because they can't prove that you should pay them in Spain (or wherever you are tax resident) - just like US firms will deduct an amount unless you send them a tax form; or they are scamming you out of a percentage of the fee. In the latter case, ask them a certificate that they have paid the money to the Indian tax office and announce that you will enquire with the authorities there. That should do the trick.


 

Sheila Wilson  Identity Verified
Spain
Local time: 11:48
Member (2007)
English
+ ...
I think Steven's being too kind Dec 2, 2013

Niina Lahokoski wrote:
Unfortunately it looks like the client is trying to fool you.

This agency has absolutely no right to make you do loads of work proving something that is totally clear to them: you are not resident in India and not subject to Indian income tax laws.

OK, maybe it's a one-person agency, and newly set up. In that case, they need to do the running around to find the proof, not you.

Please let other translators know about this agency's practices through the Blue Board. Some translators are naïve enough to just accept such practices. After all, what do we Europeans know about tax laws in India? Fortunately, those of us who have clients the world over know it just doesn't work like that.


 

Steven Segaert
Estonia
Local time: 13:48
Member (2012)
English to Dutch
+ ...
Depends... Dec 2, 2013

Sheila Wilson wrote:

you are not resident in India and not subject to Indian income tax laws.


I'm not sure about that. Every country can decide how it taxes things, and residence may not be the criterion. There might be a law saying that Indian companies can be held responsible for taxes that are to be paid by their freelancers, unless they can prove that these taxes are legally paid elsewhere. I'm not saying there is such a rule, I'm just saying there might be.

For this reason, countries conclude bilateral agreements in which tax residency is determined and by which double taxation is avoided. These treaties replace the national scope of application and usually state that if you are tax resident in one of the contracting states, you pay your taxes on all your income there - even if that taxable income (defined in national law) was gained elsewhere.

If there is no treaty, you may very well have to pay double taxes or may have to rely on the internal legislation of your country to avoid that. If there is a treaty (in this case, it seems), the administration of things might require that you can show that you are a tax resident in your country. That should not be difficult to obtain, and it is something you should have in your business files anyway.

An obvious way around all that is to incorporate. In that case, you don't bill as an individual but as a company, and you avoid any discussion about income tax.


 

Niina Lahokoski  Identity Verified
Finland
Local time: 13:48
Member (2008)
English to Finnish
+ ...
Letting the translator know at the time of payment... good conduct? Dec 2, 2013

Even if the situation was as Steven described, the agency should be aware of it and should have let the translator know about it at the beginning of collaboration instead of at the time of payment.
We translators can't be expected to know the details of different countries' taxation. I'd say it is our business to know our own country's rules and the clients' business is to know and advise us of theirs'.


 

Sheila Wilson  Identity Verified
Spain
Local time: 11:48
Member (2007)
English
+ ...
I don't think double taxation is relevant here Dec 2, 2013

Steven Segaert wrote:
There might be a law saying that Indian companies can be held responsible for taxes that are to be paid by their freelancers, unless they can prove that these taxes are legally paid elsewhere.

In that case, the onus should be on that agency to send us a form which we can complete and send back, signing that we pay our taxes where and when they're due. Just like the W8BEN from the US, which only asks us if we have residency as either an individual or a company in the US. I've signed those without having to involve my local authorities. Believe me, getting anything out of the Spanish tax bods is worse than getting blood out of a stone.icon_frown.gif
For this reason, countries conclude bilateral agreements in which tax residency is determined and by which double taxation is avoided.

I'm no tax expert so I can't vouch for what I say and apologies if I've got it wrong, but as far as I know this is nothing to do with whether or not there's a double tax treaty. If I, a UK citizen resident in Spain, invoice an agency registered in India by means of a totally valid Spanish invoice with all the right tax information, then I'm providing a business service, not earning income. The tax point is never India and always Spain.

Double taxation agreements would apply to, for example, an employment contract where you are contracted as an employee of an Indian firm but don't take Indian residency. That could well happen nowadays with Internet home-working. In that case, you would be technically liable to tax in both countries, but they sort it out so you only pay once (normally to the one that wants you to pay mosticon_frown.gif).


 

Lennart Luhtaru  Identity Verified
United States
Member
English to Estonian
+ ...
I agree Dec 2, 2013

Steven Segaert wrote:

Sheila Wilson wrote:

you are not resident in India and not subject to Indian income tax laws.


I'm not sure about that. Every country can decide how it taxes things, and residence may not be the criterion. There might be a law saying that Indian companies can be held responsible for taxes that are to be paid by their freelancers, unless they can prove that these taxes are legally paid elsewhere. I'm not saying there is such a rule, I'm just saying there might be.

For this reason, countries conclude bilateral agreements in which tax residency is determined and by which double taxation is avoided. These treaties replace the national scope of application and usually state that if you are tax resident in one of the contracting states, you pay your taxes on all your income there - even if that taxable income (defined in national law) was gained elsewhere.

If there is no treaty, you may very well have to pay double taxes or may have to rely on the internal legislation of your country to avoid that. If there is a treaty (in this case, it seems), the administration of things might require that you can show that you are a tax resident in your country. That should not be difficult to obtain, and it is something you should have in your business files anyway.

An obvious way around all that is to incorporate. In that case, you don't bill as an individual but as a company, and you avoid any discussion about income tax.


I don't know about India, but if you do pay from EU countries to someone (usually another business) in so called tax havens, you might have some explaining to do in tax office as you must be able to prove that the payment was related to operating activities (not to hide income and the transaction was not an "imaginary deal"). And burden of proof lies on the EU resident taxpayer.

[Edited at 2013-12-02 12:22 GMT]


 

3ADE shadab
Local time: 16:18
Hindi to English
+ ...
YES !! if you are resident of India Dec 2, 2013

Yes ! you have to pay service Tax if you are living in India and you have Indian Clients who pays you in INR. Whereas if you are earning in USD from Foreign Clients then you need not to pay the taxes.

 

3ADE shadab
Local time: 16:18
Hindi to English
+ ...
NO ! you are not suppose to pay Taxes Dec 2, 2013

Malin Norberg wrote:

Hi,

I have just had a very bad experience with an Indian translation company. I did a quite big translation project during the past months with them and sent an invoice for over 5000 dollars. I have received the payment and they have withdrawn a 20% of Indian income tax from the payment so I received much less than expected. On top of this I have to pay the income tax in my country.

Has anybody had the same experience? Is this legal? Why do I have to pay taxes in a country that is not my residence country?

Kind regards,

Malin


You should not pay the taxes for this but translation agency have to pay the taxes which they charge from CLIENT but not from you atleast.


 

Tom in London
United Kingdom
Local time: 11:48
Member (2008)
Italian to English
Withholding Tax Dec 2, 2013

Some countries apply a Withholding Tax; this is a guarantee that the tax will in fact be paid. Then the supplier of the service can deduct it from their tax bill, in the country where they are domiciled. From that point of view, your client in India might simply be acting in accordance with Indian law.

However, this presupposes that a specific bilateral agreement exists between India and Spain.

You should ask the Spanish tax authorities for clarification.


 

Angie Garbarino  Identity Verified
Member (2003)
French to Italian
+ ...
Yes ask to Hacienda Dec 2, 2013

Tom in London wrote:

You should ask the Spanish tax authorities for clarification.


It is possible that you can deduct that 20%.

However no Indian company asked me to pay indian taxes.


 

Angie Garbarino  Identity Verified
Member (2003)
French to Italian
+ ...
Yes, Dec 2, 2013

Sheila Wilson wrote:
I'm no tax expert so I can't vouch for what I say and apologies if I've got it wrong, but as far as I know this is nothing to do with whether or not there's a double tax treaty. If I, a UK citizen resident in Spain, invoice an agency registered in India by means of a totally valid Spanish invoice with all the right tax information, then I'm providing a business service, not earning income. The tax point is never India and always Spain.


Yes, I am an Italian citizen resident in Spain and when I invoiced an Indian Company, it was exctly like you said


 

Ann Krol  Identity Verified
Spain
Local time: 11:48
Member (2008)
Polish to English
+ ...
I have been asked once Dec 2, 2013

Hi there,

I have been asked by an Indian client to pay an Indian tax and I have explained him that I have my residence for tax purposes in Spain and this is where I perform the service. So finally he didn't charge...

HTH,
Ann


 

Malin Norberg  Identity Verified
Local time: 12:48
English to Swedish
+ ...
TOPIC STARTER
Thanks! Dec 2, 2013

Thank you all for your help. I have now received a stamped tax form from the client so I think they actually have paid the tax to their Tax Office. Another indian client (who did not deduct any tax on my invoice) said that "anyone who does not have presence in India is not liable to pay tax. And then there is this double taxation avoidance treaty between india and many european countries. But big companies don´t want any hassle and just deduct tax."

I guess I have to pay a visit to the Tax Office here to see if they can advise me.

Malin


 
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