U.S. TAX GUIDE IN INDIA

What does self-employment mean for US expats in India?

Being self-employed as a US expat in India means working independently without a formal employer. This includes freelancing, contracting, or running a business.

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Self-employment applies to US citizens, Green Card holders, dual citizens, and temporary expats. Common examples are providing consulting services, operating an online store, or working as a contractor. 

Even if you haven’t officially registered a company in India, you are considered self-employed if you earn income on your own.

How do self-employed US expats report their income?

If you’re self-employed, you must report your global income, including earnings in India, to the IRS. The process involves:

  1. Report income and expenses: Use Schedule C to document business income and deduct allowable expenses like supplies, travel, or advertising.
  2. Calculate net income: Subtract business expenses from your income to determine your net income.
  3. File Form 1040: Report your net income on Form 1040, which determines your income tax and self-employment tax.

Do self-employed expats need to pay self-employment tax?

Yes, self-employment tax is required for US expats. This tax covers Social Security and Medicare contributions and is separate from income tax. The self-employment tax rate is 15.3% of your net income.

Even if you pay social security taxes in India, you still owe US self-employment tax. This is because there is no Totalization Agreement between the US and India to eliminate dual taxation on social security.

How do the FEIE and FTC benefit self-employed expats?

  • Foreign Earned Income Exclusion (FEIE): This exclusion allows you to exclude up to US$130,000 of earned income from US taxes in 2025. However, it does not reduce self-employment tax.
  • Foreign Tax Credit (FTC): The FTC lets you claim a credit for income taxes paid to India, reducing your US income tax liability. Like the FEIE, it does not affect self-employment tax.

Why is self-employment tax mandatory without a Totalization Agreement?

Because the US and India do not have a Totalization Agreement, US expats must pay self-employment tax to the US, even if they contribute to Indian social security systems. This lack of an agreement leads to unavoidable dual taxation on social security contributions.

What steps should expats take to file self-employment taxes?

Follow these steps to file self-employment income:

  1. Calculate net income: Use Schedule C to subtract business expenses from gross income.
  2. Determine self-employment tax: Complete Schedule SE to calculate your self-employment tax liability and report it on Form 1040.
  3. Claim tax benefits: Use Form 2555 to apply the FEIE or Form 1116 to claim the FTC and reduce your US income tax.

What business expenses can be deducted?

Self-employed expats can reduce their taxable income by deducting business expenses, such as:

  • Office supplies: Pens, paper, or computers used for work.
  • Travel expenses: Costs for flights, lodging, and meals related to your business.
  • Advertising: Digital ads, website costs, or promotional materials.
  • Home office: Deduct expenses if you use part of your home exclusively for business purposes.
  • Professional fees: Payments to accountants, lawyers, or consultants.
  • Insurance premiums: Costs for business insurance or health insurance as a self-employed individual.

Why is it important to consult a tax professional?

Filing taxes as a self-employed expat is complex due to extra requirements and the risk of dual taxation. A tax expert can:

  • Ensure compliance with both US and Indian tax laws.
  • Help maximize deductions and credits.
  • Avoid penalties for incorrect or late filings.

What additional considerations should self-employed expats keep in mind?

  • FBAR and FATCA: If your foreign financial accounts exceed US$10,000 in value during the year, you must file an FBAR. Additionally, you may need to file Form 8938 under FATCA for larger foreign assets.
  • Quarterly tax payments: Self-employed individuals must make estimated tax payments quarterly. Missing these payments can lead to penalties and interest.
  • Dual social security contributions: Be prepared to pay into both US and Indian social security systems if required by local laws.

How can expats manage dual taxation more effectively?

While dual taxation on social security cannot be avoided due to the lack of a Totalization Agreement, careful tax planning can minimize overall tax liability. Using the FEIE and FTC, claiming all eligible deductions, and working with a tax professional ensures compliance while reducing financial stress.

By following these steps and understanding your tax obligations, you can stay compliant, reduce your tax burden, and focus on growing your self-employment income as a US expat in India.