What is FEMA for Remote Payments?
FEMA (Foreign Exchange Management Act 1999) is the Indian law governing all cross-border foreign exchange transactions, including payments from foreign clients to India-based remote workers and service providers. It is administered by the Reserve Bank of India.
In more detail
FEMA replaced the earlier restrictive FERA regime and liberalized India's approach to foreign exchange. Under FEMA, payments for services rendered from India to overseas clients fall under current account transactions and are generally permitted without prior RBI approval, provided the funds are received through authorized banking channels.
For remote staffing, this means a US client can legally pay an Indian entity (or via an Employer of Record) in USD for services rendered. The Indian entity receives the USD, converts to INR through an authorized dealer bank, and pays the worker locally. Export of services must be reported via a FIRC or equivalent inward remittance certificate for each transaction above the threshold.
How it works
- US client signs services agreement with Indian entity.
- Client pays USD invoice through SWIFT or equivalent.
- Indian bank receives USD, issues FIRC/inward remittance advice.
- Indian entity converts to INR and pays worker locally.
- Proceeds are reported under software/ITES export code as applicable.
- Entity files tax returns reflecting service export revenue.
Related terms
Mini FAQ
Yes. Under FEMA, payments for services are permitted through authorized banking channels. Best practice is to pay an Indian entity or EOR.
Yes, but it raises worker classification and tax questions. Most companies prefer paying an entity or EOR to avoid permanent establishment risk.
Indian recipients report inward remittances via bank-issued FIRCs and include export revenue in tax filings.