US Consulting Income After Returning to India: Complete Tax Guide for 2025

The Common Question We Hear

"I'm working with a US company on H-1B for seven years. I plan to continue working for the same US company as an independent consultant from India after I relocate in 2025. Will I be taxed on this consultancy income?"

This scenario affects thousands of Indian professionals annually. The tax implications depend on your residency status, income source rules, and treaty benefits. Here's the complete breakdown.

Your Tax Residency Status: The RNOR Advantage

Step 1: Establishing Indian Residency

If you return to India in August 2025 and stay for at least 182 days during FY 2025-26 (April 2025 to March 2026), you'll qualify as a resident under Indian tax law.

Step 2: Qualifying for RNOR Status

The critical question: Are you an Ordinary Resident (ROR) or Resident but Not Ordinarily Resident (RNOR)?

RNOR Qualification Test: You need to satisfy ONE of these two conditions:

Path 1: NRI status for 9+ out of 10 preceding financial years
OR
Path 2: 729 days or less in India during preceding 7 financial years

Your Situation Analysis:

• Path 1: You've been NRI for only 7 years (not 9+), so this doesn't qualify

• Path 2: Less than two weeks annually × 7 years = Well under 729 days ✅

Result: You qualify for RNOR status via Path 2 - the day-counting method

What RNOR Status Means for Your Taxes

As an RNOR, you're liable for Indian tax only on income that:

• Is received or deemed to be received in India

• Accrues or arises in India

• Is deemed to accrue or arise in India

Key Point: Income earned and accrued outside India is not taxable in India unless derived from a business controlled from India or profession set up in India.

Your Consultancy Income: India Tax Treatment

The Determining Factor: Location of Services

Since you'll be rendering consultancy services from India, even for an overseas client, this income will be considered to accrue in India and is therefore taxable in India.

Important Distinction:

• Not taxable in India: US employment income earned before your return

• Taxable in India: Consultancy income for services performed from India

Best Practice for Tax Planning

Documentation Requirements:

• Maintain records of your physical location when services are performed

• Document the transition date from employee to consultant

• Keep detailed invoices showing service delivery location

US Tax Implications: Dual-Status Return

Your 2025 US Tax Status

You can file a dual-status return for calendar year 2025:

Part 1 (January - May 2025): US Resident Alien

• Subject to US tax on worldwide income

• Standard deductions and exemptions apply

Part 2 (June - December 2025): Non-Resident Alien

• US taxation only on US-source income

• Different tax rates and limited deductions

Consultancy Income from India: US Tax Treatment

As a Non-Resident Alien, consultancy income earned for services performed outside the US is generally not taxable in the US.

India-USA DTAA: Avoiding Double Taxation

Treaty Protection for Consultancy Income

Under the India-USA Double Taxation Avoidance Agreement, your consultancy income qualifies for treaty benefits if:

1. Not "Fees for Included Services": Standard consultancy typically doesn't qualify as FIS

2. No Fixed Base in US: You're operating from India, not a US office

Result: Income taxable only in India (your country of residence), eliminating double taxation.

Practical Planning Steps

Before You Return (July 2025)

1. Finalize Employment End Date: Clear transition from W-2 to 1099

2. Document Residency Change: Flight records, visa surrendering

3. Set Up Indian Operations: Business registration, bank accounts

Next Steps: Ensure Proper Compliance

Return migration with ongoing US business relationships requires integrated tax planning across both jurisdictions. The interaction between RNOR benefits, treaty provisions, and dual-status filing creates opportunities for optimization, but also compliance traps.

Facing a similar transition? Our cross-border tax specialists help U.S. professionals navigate exactly these scenarios. We combine US CPA expertise with Indian CA knowledge for complete compliance coverage.

Free 15-minute consultation to assess your specific situation and explain the compliance requirements that apply to your transition.

📞 Contact Settleline: +91-9821844770
🌐 Schedule consultation: settleline.com/contact