How to Pay Independent Contractors in India

If you're a US business working with freelancers, developers, or consultants in India, getting payments right is essential—but it can feel complicated. Between international wire transfer fees, fluctuating exchange rates, and tax paperwork like W-8 BEN forms, there's a lot to navigate.

The good news? Paying independent contractors in India doesn't have to be difficult or expensive. This guide covers everything you need to know: the best payment methods, US tax requirements, compliance considerations, and how to avoid costly mistakes.

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5 Best Ways to Pay Contractors in India

While outsourcing to India can reduce labor costs, those savings can quickly disappear if you choose the wrong payment method. Here are five options to consider, along with their pros, cons, and typical costs.

1. Wise Business

Wise Business is designed for companies that make regular international payments. You can send money to India in Indian Rupees (INR) using the mid-market exchange rate—the same rate you see on Google—with low, transparent fees.

Feature	Details
Fees	Average fee: 0.45%
Speed	Typically 0–2 business days. On average, 70% of transfers arrive in under 20 seconds, and 95% arrive within 24 hours.
Convenience	BatchTransfer, QuickBooks integration, online dashboard

Pros:

• Mid-market exchange rate with no hidden markups
• Low, transparent conversion fees
• Recipients don't need a Wise account
• Batch payments let you pay multiple contractors at once
• Accepts ACH, debit card, credit card, and wire transfer

Cons:

• No cash pickup option

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2. Instarem

Instarem offers competitive rates for international transfers, particularly for smaller amounts. Their fee structure varies based on the transfer corridor and amount.

Feature	Details
Fees	Fees are disclosed upfront before you confirm the transaction.
Speed	1–5 business days
Convenience	Mobile app, supports batch payments

Pros:

• Straightforward fee structure
• Loyalty points program
• Low exchange rate margins

Cons:

• Account verification can take time
• No card payment option

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3. OFX

OFX doesn't charge upfront transfer fees. Instead, they add a margin to the exchange rate, which varies based on your transfer amount and history with them. Larger transfers typically get better rates.

Feature	Details
Fees	Exchange rate margin (no upfront fee)
Speed	1–5 business days
Convenience	Mobile app, accounting software integration, recurring payments

Pros:

• No transfer fees
• No maximum transfer limit
• 24/7 customer support

Cons:

• Exchange rate markup can be significant on smaller amounts

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4. PayPal

PayPal is a familiar name that many contractors already use. It's fast and easy to set up, but convenience comes at a cost—fees for international transfers and currency conversion are higher than specialized services.

Feature	Details
Fees	PayPal fees depend on the payment method chosen, in addition to the set fee, you will also pay a percentage-based fee for international transactions. Paying for goods or services in a currency other than the currency the goods or services are listed in: 4% Sending money using PayPal Payouts such that your recipients receive a different currency from the currency in which you pay: 4% All other transactions: 3%
Speed	0–2 business days
Convenience	Send using email address, mass payment tools

Pros:

• Fast and widely recognized
• Easy to use

Cons:

• Higher fees than dedicated transfer services
• Recipient must have a PayPal account
• Exchange rate includes markup

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5. Bank Wire Transfers

Traditional bank wire transfers are available through most US banks, but they're typically the most expensive option. Banks charge upfront fees and often add significant markups to exchange rates.

Feature	Details
Fees	Typically $25–$65 per transfer, plus potential intermediary bank fees
Speed	3–5 business days
Convenience	Available at most banks, good for large transfers

Pros:

• Familiar and established
• Suitable for very large transfers

Cons:

• High fees
• Poor exchange rates
• Slow processing
• Intermediary banks may deduct additional fees

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US Tax Requirements When Paying Indian Contractors

As a US business paying contractors abroad, you have specific tax documentation requirements. Here's what you need to know:

W-8 BEN Form

Before making payments to an Indian contractor, collect a completed Form W-8 BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting). This form:

• Certifies the contractor's foreign status
• Documents that they're not subject to US tax withholding
• May allow them to claim reduced withholding under the US-India tax treaty

Do You Need to Withhold US Taxes?

Generally, no. US companies typically don't withhold federal income tax on payments to foreign contractors who work outside the United States. However, you should:

• Keep the W-8 BEN on file for your records
• Maintain documentation of all payments made
• Consult a tax professional if you're unsure about your specific situation

Your Contractor's Tax Obligations

Indian contractors are responsible for reporting and paying their own income taxes in India. This isn't something you need to manage, but understanding it helps set expectations in your working relationship.

Note: This information is for general guidance only and doesn't constitute tax advice. Consult a qualified tax professional for advice specific to your situation.

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Contractor Misclassification: Risks for US Businesses

One of the biggest compliance risks when working with international contractors is misclassification—treating someone as an independent contractor when they should legally be classified as an employee.

How India Distinguishes Contractors from Employees

Under Indian law:

• Contract for service = Independent contractor relationship
• Contract of service = Employment relationship

Key factors that determine classification include:

• Control: Do you dictate how, when, and where the work is done?
• Exclusivity: Does the contractor work only for you?
• Tools and equipment: Who provides them?
• Integration: Is the contractor embedded in your day-to-day operations?

What's at Risk?

Misclassifying workers can lead to:

• Back payment of employee benefits (Provident Fund, health insurance)
• Penalties under Indian labor laws
• Potential disputes over intellectual property ownership
• Reputational damage

How to Protect Your Business

• Use clear contractual language specifying the independent contractor relationship
• Avoid exerting excessive control over how contractors complete their work
• Don't require exclusivity unless it's essential and clearly contracted
• Periodically review long-term contractor relationships

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Essential Elements of an Independent Contractor Agreement

A well-drafted contract protects both you and your contractor. Include these key elements:

• Payment terms: Amount, currency (USD or INR), and schedule (monthly, per milestone, or on project completion)
• Invoice requirements: Format, submission deadlines, and required details
• Payment method: How payments will be made and expected processing time
• Scope of work: Clear description of deliverables and responsibilities
• Intellectual property: Who owns the work product (critical for tech and creative projects)
• Confidentiality: Non-disclosure provisions protecting sensitive information
• Term and termination: Contract duration and conditions for ending the relationship
• Dispute resolution: How disagreements will be handled

For complex arrangements, consider having a legal professional review your contract.

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Indian Tax Basics: TDS and GST Explained

While you're not typically responsible for Indian taxes, understanding the basics helps you work effectively with contractors.

TDS (Tax Deducted at Source)

TDS is India's withholding tax system. When an Indian entity pays a contractor, they must deduct:

• 10% for professional or technical services
• 2% for other contractual work

As a US business paying directly to an Indian bank account, you generally don't deduct TDS—that's between your contractor and Indian tax authorities.

GST (Goods and Services Tax)

Contractors in India with annual turnover above ₹20 lakh must register for GST. If your contractor is GST-registered, their invoices may include GST charges.

PAN (Permanent Account Number)

This is India's taxpayer identification number. Contractors should have one for proper tax compliance on their end.

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Things to Consider When Choosing a Payment Method

When evaluating how to pay your contractors, weigh these factors:

• Total cost: Look beyond transfer fees—exchange rate markups can add significant hidden costs
• Speed: Faster payments build trust and maintain good working relationships
• Convenience: Consider batch payments, recurring transfers, and accounting integrations
• Security: Choose regulated providers with strong fraud protection
• Contractor preference: Ask what works best for them—some prefer receiving INR directly

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How Wise Business Simplifies Paying Contractors in India

If you regularly pay contractors in India, Wise Business is built to solve the common pain points:

Transparent pricing: You'll always see the exact fee before you send. Wise uses the mid-market exchange rate—the one you find on Google—with a small, clearly displayed conversion fee. No surprises.

Fast delivery: Most transfers to India arrive within 0–2 business days, so your contractors aren't left waiting.

Batch payments: Paying multiple contractors? Upload a CSV file and send all payments at once with Batch Transfer. It's a major time-saver for businesses with international teams.

Easy reconciliation: Wise integrates with QuickBooks and other accounting tools, making bookkeeping simpler.

No account needed for recipients: Your contractors receive payments directly to their Indian bank account. They don't need to sign up for anything. If they do have a Wise account, however, then sending payments between the same currency is free.

Open a Wise Business account →

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Frequently Asked Questions

How do you pay contractors in India?

US businesses can pay contractors in India through international wire transfers, online money transfer services like Wise or Instarem, or platforms like PayPal. The most cost-effective options use the mid-market exchange rate and charge transparent fees rather than hiding costs in poor exchange rates.

Do US companies need to withhold taxes when paying Indian contractors?

Generally, no. US companies don't withhold US income taxes on payments to foreign contractors working outside the US. However, you should collect a W-8 BEN form from your contractor to document their foreign status for IRS records.

What currency should I use to pay contractors in India?

You can pay in either USD or INR. Many contractors prefer receiving INR directly to avoid conversion fees on their end. Services like Wise convert your USD to INR at the mid-market rate, so your contractor receives the full amount in their local currency.

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Conclusion

Paying independent contractors in India is straightforward once you understand your options. Choose a payment method that offers transparent fees and competitive exchange rates, collect the right tax documentation (W-8 BEN), and use clear contracts that protect both parties.

For US businesses making regular payments to India, Wise Business offers a simple, cost-effective solution with the mid-market exchange rate, fast transfers, and BatchTransfer to save time and money.

Get started with Wise Business →

	Editor & Business Expert:
	Panna is an expert in US business finance, covering topics from invoicing to international expansion. She creates guides and reviews to help businesses save time and make informed decisions. You can read more useful business articles on her author profile.