With the advent of the internet, the world has transformed into a Global Village, where borders no longer limit access to services. From online tuitions and digital marketing to content writing and market research, individuals can engage with service providers across the globe with just a click. This seamless connectivity has enabled collaborations creating win-win situations for all the parties involved. However, such cross-border arrangements raise critical questions under Indian laws, particularly the Foreign Exchange Management Act (FEMA), 1999, which governs how payments can be collected and remitted abroad. This article explores the legalities of a person’s role as an intermediary, examining whether his actions comply with India’s foreign exchange and tax regulations.
Example: Mr. Ganesh
Mr. Ganesh, a software engineer in India, freelances in website development and SEO. A Russian company offering online Russian language courses requested him to collect INR payments from Indian students and remit them abroad in USD. Ganesh collected the money in his personal savings account and later transferred it to the company.
Here Indian foreign exchange laws come into picture—because Ganesh acted as a collection agent for a foreign company, and remitted foreign exchange abroad. This raises compliance questions under Indian foreign exchange laws and FEMA regulations.
Key Legal Questions
- Is Mr. Ganesh allowed to collect INR payments on behalf of a foreign entity?
- Can he deposit these funds into his personal savings account?
- Is he permitted to convert INR to USD and remit the funds abroad?
- Are there compliance requirements (documentation, reporting) he must follow?
FEMA Analysis
FEMA classifies transactions into Current Account Transactions (services, trade, remittances) and Capital Account Transactions (investments, loans). Ganesh’s case—collecting fees for online services—falls under current account transactions.
- Collecting Fees on Behalf of a Foreign Entity
Permissible, provided transactions are legitimate and comply with FEMA. - Depositing Funds into a Personal Account
Not ideal—better to use a business account. Personal accounts for third-party funds may invite regulatory scrutiny. - Remittance Abroad (INR to USD)
Outward remittances for services are generally allowed under FEMA, subject to the Liberalised Remittance Scheme (LRS). Compliance with Form A2 reporting via banks is mandatory. - Tax Compliance
- Goods and Services Tax (GST) may apply to online services consumed in India. If the Russian company is not registered under GST in India, Mr. Ganesh may need to register as a facilitator or agent under GST laws and pay tax.
- If Mr. Ganesh is receiving a commission or fee for collecting and transferring the funds, this income may be subject to TDS under the Income Tax Act, 1961.
- Double Taxation Avoidance Agreement (DTAA) with Russia may impact the Russian company’s taxation.
- Tax Collected at Source (TCS) @ 20% applies if outward remittance exceeds ₹10 lakh in a financial year.
- Documentation
A written agreement with the foreign company, invoices, and KYC documents are essential for legitimacy.
Is the Arrangement Allowed?
Yes, but only with proper documentation, RBI-compliant channels, tax reporting, and ideally a business account. Without compliance, there is risk of penalties under FEMA and Income Tax laws.
Professional Advice
If you are a freelancer or software employee, it is advisable not to accept and hold foreign entity amounts in your personal account. Instead, consult FEMA advisors Hyderabad or experts in FEMA consultancy services to structure these transactions legally.
Why Choose Us?
- Recognised among the best FEMA consultants in Hyderabad and Telangana.
- Expert guidance on FEMA consultancy services—from LRS to cross-border arrangements.
- Advisory on Indian foreign exchange laws for freelancers, startups, and corporates.
- Strong experience as trusted FEMA advisors Hyderabad for current and capital account transactions.
- End-to-end compliance support to avoid penalties under FEMA and RBI regulations.
