Such income must be disclosed in Schedule FA (Foreign Assets) and Schedule FSI (Foreign Source Income). Failing to do so may trigger scrutiny under the Black Money Act.
As you prepare to file your tax return for FY25, know the taxation rules on your foreign income earned as a freelancer to ensure correct reporting.
Also read: Earning global income as a freelancer? Key income tax provisions you must know
How is foreign income taxed?
Foreign payments received for services—whether from a US company or a global platform—are treated as export of services and taxed as business income under “Profits and Gains from Business or Profession”, taxed as per your slab.
This applies to even payouts received from social media platforms like X as the money is paid by the company headquarters in the US. Similarly, for Youtube payouts, tax rules will depend on whether its Indian or foreign entity pays it, as per Akhil Chandna, partner, Grant Thornton Bharat.
“Income generated from platforms such as X or Youtube may be classified as either domestic or foreign income, depending on the origin of the payment. If the payment is made directly by a foreign entity, it is treated as foreign-sourced income. Conversely, if the payment is through an Indian entity, the income is treated as Indian-sourced.”
Experts differ on whether earnings from social media should be treated as business income or classified under Income from Other Sources (IFOS).
Chandna says when someone is fully dedicated to content creation as their primary occupation, the earnings are treated as business income. “On the other hand, if the income is incidental and not significant compared to other sources, it is categorised as “Income from Other Sources” and taxed accordingly,” he added.
The second condition could apply to salaried individuals who have premium subscription and may be getting small payouts sporadically.
Ashish Karundia, founder of CA firm Ashish Karundia & Co, says even one stray transaction may qualify as business. “You are inviting the taxman to your door by not declaring it as business income. The argument that it is IFOS as such transactions are far and few, and may not find favour in the courts, given the way ‘business’ is interpreted over the periods,” he said.
So, what should you do?
Ajay Rotti, founder and CEO, Tax Compaas says for smaller amounts upto ₹1-2 lakh in a year, even if someone reports the income as IFOS, the chances of the tax department disputing it are abysmal. “As long as you pay tax on the income, the department will not question small amounts. Bigger amounts get attention as that is clearly business income,” he said.
Filing such income as business income has a benefit though, Rotti added. “You can claim the monthly subscription fee and other associated expenses like the mobile data bill as business related expenses,” he explained.
However, even when declared as IFOS, you must declare it in schedule FA and FIS.
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What and how to report in ITR
Foreign income is to be reported in two Schedules in the ITR— FA and FSI.
Schedule FA is filled as per calendar year, whereas reporting of incomes in Schedule FSI is as per financial year. So, for the current assessment year filing, you will report incomes earned from 1 January 2024 to 31 December 2024 in Schedule FA, while Schedule FSI will have incomes for FY25, i.e, from 1 April 2024 to 31 March 2025.
In Schedule FSI, you must report the details of income that you earn or receive from any source outside India. Make sure you also include this income separately under the appropriate head–business or IFOS–in your total income computation. Additionally, mention the relevant head of income under which you have reported this foreign source income in the corresponding column.
In Schedule FA, these disclosures must be made under Table G, said Karundia. Columns 7 to 9 should be filled carefully, including the amount and the relevant Schedule where it is reported. The reported amount must be converted into INR using the telegraphic transfer buying rate of the State Bank of India.
Next, if tax was withheld on the income in the origin country, taxpayers can claim tax relief on it by filing Schedule TR (Tax Relief). To avoid paying double tax, one can get Input Tax Credit, for which Schedule TR must be filed. In Schedule TR, you need to give a summary of the detailed information already furnished in Schedule FSI. Also, to claim FTC you must also submit Form 67 along with the ITR, said Chandna.
Payments via PayPal or Stripe?
When you receive foreign income in your Indian bank account, you must get an FIRC or Foreign Inward Remittance Certificate from your bank to confirm receipt of money.
While the certificate is not to be furnished in ITR or elsewhere, FIRC supports the source and nature of foreign income and hence is a useful proof in case of scrutiny or for GST refund purposes.
However, many international companies pay via wallets like PayPal and Stripe, where the money is deposited into the bank account in INR, rather than the foreign currency. In this case, the bank may not issue an FIRC. You can get an MT103 message from the remitting bank and an inward remittance certificate from the recipient bank, said Karundia.
Chandna said these platforms have streamlined the process, by providing system-generated Foreign Inward Remittance Advice (FIRA), which suffices in most cases. Alternatively, you can get an MT103 issued from the intermediary bank in India, said Karundia.
“In transfers through platforms like PayPal or Stripe, a bank in India, the intermediary bank, may have an arrangement with a bank in the remitter country. This remitting bank generally issues the MT103 certificate.”
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GST compliance
If your annual freelance income exceeds ₹20 lakh, GST registration is mandatory. Since services to foreign clients qualify as zero-rated exports, you don’t charge GST but must comply by registering.
Karundia explained that you have two options–file a Letter of Undertaking or LUT to raise an invoice without GST, or raise the invoice with tax and don’t file LUT.
“In the second option, you pay the GST using your own input tax credit or cash and then claim a refund.”
The LUT route is easier as it doesn’t involve claiming a refund. It should be noted that LUT should be filed at the start of the year before the services are exported to a foreign client and not retrospectively. “It’s an easy online process done on the GST portal,” said Karundia.