Many startups and companies in India work with freelancers, consultants, or firms based outside India — for services like design, software development, legal advisory, digital marketing, and more.

But the common question is:

❓“Do we need to create an ODI or foreign subsidiary just to pay them?”

👉 Short Answer: No, you don’t.
Paying foreign consultants is completely legal under FEMA and doesn’t require ODI — provided it’s structured correctly.

Let’s break it down.

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✅ What the Law Allows

Under the Foreign Exchange Management Act (FEMA):

• Payments for services received from persons resident outside India are treated as Current Account Transactions
• These can be made freely, without ODI approval, subject to:
  • Service is genuine & legal
  • Purpose is permitted
  • Proper documentation is maintained

So yes, your Indian company can pay a foreign consultant directly — no need to set up a subsidiary, WOS, or file under ODI.

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📑 FEMA Category: Current Account vs Capital Account

Transaction Type	FEMA Category	ODI Required?
Payment to foreign consultant	Current Account	❌ No
Investment in foreign company	Capital Account	✅ Yes
Loan to foreign entity	Capital Account	✅ Yes
Purchase of service (one-time)	Current Account	❌ No

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💵 How to Pay Foreign Consultants Legally

1. Invoice: Get a proper invoice from the foreign consultant
2. Agreement: Preferably have a short contract or email confirmation of scope
3. Form 15CA/15CB: Required for payments above ₹5 lakh or under certain categories
4. Bank Remittance: Use your bank’s Authorized Dealer (AD Category-I) forex desk
5. Purpose Code: Use the correct FEMA purpose code (e.g., S0013 – Business and management consultancy) while remitting

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📋 Documents You May Need

Document	Purpose
Invoice from foreign consultant	Proof of service and tax record
Agreement/engagement letter	Compliance trail
Form 15CA (mandatory for most)	Tax declaration to Income Tax Dept
Form 15CB (if applicable)	CA certificate verifying TDS compliance
Bank SWIFT/FIRC copy	Remittance proof for accounting/tax audit

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🧾 Is TDS Applicable?

Yes — payments to foreign consultants may attract withholding tax (TDS) under Section 195 of the Income Tax Act.

Consultant Location	TDS Applicable?	Rate
Without PAN & DTAA	✅ Yes	20% or higher
With valid DTAA	✅ Yes	10% / 15% or lower
Royalty/technical services	✅	As per section 9 or DTAA

💡 Take help from a CA to avoid default under Section 195 or Black Money Act.

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❗ Mistakes to Avoid

• ❌ Sending money under “gift” or “miscellaneous” purpose
• ❌ Making payments via unofficial routes or crypto
• ❌ Skipping Form 15CA/CB, which can trigger TDS issues
• ❌ Paying through personal bank account of a director
• ❌ Paying advance for a long-term contract without a service agreement

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🤔 When Do You Need ODI Then?

Only when your company:

• Invests in equity or debt of a foreign entity
• Sets up a branch, JV, or subsidiary abroad
• Acquires a foreign business or asset
• Issues a guarantee for a foreign entity

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✅ Summary

Scenario	ODI Required?	Action Needed
One-time service from US consultant	❌ No	Invoice + 15CA
Monthly retainer to UK-based designer	❌ No	Agreement + 15CA/CB
Setting up office in Dubai	✅ Yes	ODI Filing + UIN
Paying freelancer on Upwork/Fiverr	❌ No	Invoice proof + Bank docs

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💼 Need Help?

We assist Indian businesses in:

• Preparing 15CA/CB forms
• Remitting payments with correct FEMA purpose codes
• Ensuring TDS + DTAA compliance
• Advising on when ODI is truly required