How to Pay Remote Workers in India
FEMA, Form A2, TDS, currency, and the three payment paths US businesses actually use.
The three common methods to pay remote workers in India are: paying a B2B invoice to a staffing provider in India (simplest - no compliance burden), using an Employer of Record service (moderate complexity), or setting up your own Indian subsidiary (most complex). Most US SMBs use the B2B invoice method because no Indian tax, FEMA, or labor compliance lands on the US company.
In more detail
Paying someone in India seems complicated until you realize the complexity lives on the Indian side of the wire, and a good staffing provider or EOR absorbs all of it for you. As a US business, your job is simply to pay a USD invoice on time. Everything downstream (INR conversion, FEMA compliance, Form A2 on the Indian receiving bank, TDS withholding, Provident Fund contributions, income tax filings, and GST) is handled by whoever is on the receiving end.
The three payment paths
1. B2B invoice to a managed staffing provider or Indian vendor (simplest)
The Indian company sends you a monthly USD invoice. You pay via ACH (if they have a US account) or SWIFT wire. Bookkeeping entry: professional services expense. No 1099. No W-2. No Indian tax implication for you. Your obligations:
- Keep a signed Master Services Agreement on file.
- Retain invoices for 7 years (standard US records rule).
- Optionally, obtain a Form W-8BEN-E from the vendor documenting their foreign status.
2. Employer of Record (moderate complexity)
You pick the worker, tell the EOR their salary, and the EOR drafts an Indian employment contract. You pay the EOR a single USD invoice each month covering: worker's gross salary in INR (converted), Provident Fund and ESI contributions, statutory bonuses, and an EOR service fee. The EOR files all Indian tax and labor returns. You still book it as a services expense on your US return.
3. Own Indian subsidiary (most complex)
You register a Private Limited company in India, open a bank account, obtain PAN/TAN, register for Provident Fund and ESI, hire the worker directly, and run monthly payroll in India. You pay the subsidiary in USD; the subsidiary pays the worker in INR. Compliance burden: annual corporate tax filing, monthly TDS returns, quarterly GST returns, labor law compliance, and transfer-pricing documentation. Viable only for 15+ employees.
Compare the three paths
| Path | Your compliance | Setup time | Monthly effort | Best for |
|---|---|---|---|---|
| B2B invoice (staffing provider) | Services expense only | Same week | Pay one invoice | Almost all SMBs |
| Employer of Record | Services expense only | 1-2 weeks | Pay one invoice | You already have a candidate |
| Own Indian subsidiary | Full Indian + US tax | 3-6 months | Full HR + finance stack | 15+ employees, long-term |
| Direct contractor (Wise/Payoneer) | W-8BEN on file; no 1099 | Same day | Pay one wire | Single short engagement |
Key Indian regulations explained
FEMA (Foreign Exchange Management Act)
FEMA governs foreign-exchange transactions going in and out of India. It applies to the Indian party, not to you as the US payer. Inward remittances for services are permitted; the receiving Indian bank reports them to the Reserve Bank of India. Your staffing provider handles this.
Form A2
Form A2 is filed by the Indian recipient's bank to classify the purpose of the incoming payment (for example, "software services" or "business process outsourcing"). You don't file it. The Indian recipient completes it through their own bank. All you need to do is include a clear description on the wire: e.g., "Payment for services per Invoice 1234 dated MM/DD/YYYY."
TDS (Tax Deducted at Source)
TDS is India's equivalent of US federal tax withholding. When an Indian business pays another Indian business for services, it withholds TDS and remits it to the Indian tax authority. For a US-to-India B2B payment, TDS is the receiving company's concern on the subsequent domestic payroll, not yours. For direct contractor payments, TDS may technically apply, but in practice the contractor handles their own Indian tax filings under the US-India Double Taxation Avoidance Agreement.
GST (Goods and Services Tax)
Services exports from India to the US are generally zero-rated under GST. The Indian staffing provider may need to file a Letter of Undertaking, but again this is their concern. Your invoice should simply show no GST on an export.
Currency considerations
- Invoice in USD if possible. This keeps your exposure to FX movement zero.
- ACH is cheaper than wire when the vendor has a US account. Wise and Payoneer for business accounts can also cut fees.
- Budget a 1-2% buffer for intermediary bank fees on SWIFT wires if ACH isn't available.
- Avoid paying in INR directly. You'll pay worse FX rates than an Indian vendor would.
What this means for your business
If you hire through a managed staffing provider like Teckas, you pay one USD invoice per month per worker, book it as a services expense, and move on. All Indian compliance (FEMA, TDS, GST, Provident Fund, ESI, gratuity, labor law) is Teckas's responsibility. This is by far the simplest path for US businesses and is the one we recommend for almost every scenario except hiring 15+ people long-term.
Related questions
Get a sample MSA and monthly invoice structure from Teckas.
Request Docs →Common follow-up questions
Form A2 is an Indian foreign-exchange form that the Indian recipient's bank requires when inward remittance is credited. You (the US payer) do not file Form A2; the Indian recipient completes it through their own bank to clarify the purpose of the incoming wire. If you pay a staffing provider, they handle this.
TDS (Tax Deducted at Source) is an Indian income tax withheld by the payer. For a US company paying a B2B services invoice to an Indian staffing provider, TDS is the provider's concern, not yours. For direct contractor payments, TDS may apply depending on whether the US-India tax treaty benefits are invoked and whether the recipient has a PAN.
Wise, Payoneer, and similar services work for paying individual Indian contractors. PayPal supports India but has higher fees and currency conversion costs. For monthly recurring payments, a SWIFT wire to a staffing provider or EOR is usually cheaper and cleaner.
FEMA (Foreign Exchange Management Act) regulates foreign exchange transactions entering or leaving India. It applies to the Indian recipient of the funds, not to you as the US payer. Your Indian staffing provider handles FEMA compliance on incoming payments.
Pay a USD invoice to a managed staffing provider via ACH or wire once a month. The provider handles the Indian-side conversion to INR, salary payment, statutory contributions, and tax compliance. You book it as a services expense on your US return.