How to pay contractors in India

How to choose: paying a contractor in India

In India, the payment itself is rarely the problem. What causes trouble is the paper trail around it: the purpose code, the FIRA, the GST export position, and from October 2026 an invoice-by-invoice realisation deadline. So start by asking what the contractor needs from the payment, and only then look at price.

1. Does the contractor need the export trail on every payment?

A GST-registered contractor (turnover above ₹20 lakh, cbic-gst.gov.in, checked 2026-09-28) zero-rates your invoice only if payment arrives in convertible foreign exchange (cbic-gst.gov.in, checked 2026-09-28). They prove it with a FIRA or e-FIRC tagged with the right purpose code. From 1 October 2026 their bank also expects an Export Declaration Form for the month’s invoices, filed within 30 days of month-end (rbi.org.in, checked 2026-09-28).

Smaller contractors need the same records for their income-tax file, even if they aren’t registered for GST.

If the contractor asks for a FIRA and a specific code: pay through a rail where you set the purpose and the receiving side issues the certificate. That means a SWIFT wire to their bank, Wise, Payoneer, or a platform that pays into an Indian bank account. If they don’t ask: check anyway. A wrong code is hard to fix after the money has landed.

2. One contractor or a team?

With one or two contractors on monthly invoices, the admin is a written agreement with an IP assignment clause, one invoice a month and one transfer. Indian copyright law leaves software with its author unless the rights are assigned in writing (see our hiring guide). You can run that yourself on a transfer rail.

From three contractors up, or when you onboard people every quarter, the cost moves to collecting PANs and bank details, matching invoices to payments and answering bank queries. That is where a contractor payouts or management platform starts to pay for itself.

If one or two: a transfer rail plus your own contract template. If a team: a platform that issues contracts and invoices and pays from the same record.

3. Percentage fee or per-contractor subscription?

Platforms charge either a percentage of each payout or a flat monthly fee per contractor. Work out the break-even on your real invoices. At 3%, a $1,500 monthly invoice costs $45 and a $4,000 invoice costs $120. A flat $29–$49 seat becomes cheaper than 3% once an invoice passes about $970–$1,630 a month. Indian contractor rates vary widely, so a team of junior developers and a single senior architect can land on opposite sides of that line. Also check whether the subscription includes the FX conversion or whether it is charged on top.

If invoices are small or irregular: percentage pricing. If they are large and steady: a per-seat plan. If you only move money: a mid-market rail from 0.57% is the floor.

4. How large is each payment?

Cross-border payment aggregators in India are capped at ₹25 lakh per transaction (RBI Master Direction, 15 September 2025, checked 2026-09-28). Wise delivers up to 1.5 million INR per working day to a business recipient (wise.com, checked 2026-09-28).

If a single invoice goes over ₹15–25 lakh: send a direct SWIFT wire to the contractor’s bank. Below that: any rail works, so choose on fees and documents.

5. Is this really a contractor relationship?

A long-term “consultant” with fixed hours, a reporting line and no other clients is a reclassification risk in India, with retroactive social-security exposure (see our hiring guide).

If the engagement is project-based and the contractor has other clients: a payouts platform or a transfer rail is enough. If it is open-ended, directed work: use a Contractor of Record that takes on the contracting. 4dev fills that role as the contracting party for each contractor, which reduces reclassification risk. If it is employment in all but name: use an Employer of Record such as Deel, Remote or Multiplier.

Payout rails that work in India in 2026

Sources: Wise sending limits, UPI and timing (wise.com, checked 2026-09-28); Wise receiving limits, settlement and e-FIRC fee (wise.com, checked 2026-09-28); Payoneer digital FIRA (payoneer.com, checked 2026-09-28); PayPal India merchant fees (paypal.com, checked 2026-09-28).

Any rail that runs through a cross-border payment aggregator is capped at ₹25 lakh per transaction (RBI Master Direction, 15 September 2025; first set in the 2023 PA-CB circular, checked 2026-09-28). UPI is a domestic rail. A foreign bank can’t pay into it directly, but Wise can deliver INR to a UPI ID, up to ₹2 lakh instantly (wise.com, checked 2026-09-28).

What the contractor needs

Most Indian contractors invoice as individuals or sole proprietors under their PAN. To receive money cleanly they need:

• A bank account with an authorised dealer bank, or a Wise or Payoneer account that pays out to one.
• The right purpose code on each inflow. The most common are P0802 (software implementation/consultancy outside SOFTEX), P1006 (business and management consultancy) and P1009 (architectural, engineering and other technical services) (rbi.org.in, checked 2026-09-28).
• GST registration above ₹20 lakh turnover (₹10 lakh in Manipur, Mizoram, Nagaland and Tripura). Service providers making inter-state supplies below that are exempt from registering (cbic-gst.gov.in, checked 2026-09-28). A registered contractor files a Letter of Undertaking (FORM GST RFD-11) to export without paying IGST (cbic.gov.in, checked 2026-09-28).
• An Export Declaration Form from 1 October 2026: one per month covering all service invoices, due within 30 days of month-end. Exporters of services other than software may file it on or before the date of payment (rbi.org.in, checked 2026-09-28).

On income tax, many contractors use the presumptive scheme, now section 58 of the Income-tax Act 2025 (formerly 44ADA). Under it, 50% of receipts is deemed profit, up to ₹50 lakh, or ₹75 lakh when cash receipts stay under 5%. Advance tax is paid in one instalment by 15 March (taxguru.in, checked 2026-09-28). Classification, IP and the full tax picture are in our hiring guide.

Documents and tax on your side

Indian TDS. The Income-tax Act 2025 replaced the 1961 Act on 1 April 2026 (incometax.gov.in, checked 2026-09-28). TDS on professional and technical fees now sits in section 393(1): 10% on professional fees and 2% on technical services once payments to one payee pass ₹50,000 in a tax year (tdsman.com, checked 2026-09-28). That machinery is for payers inside India.

For a foreign payer with no Indian presence, CBDT’s Circular 726 (1995) accepted that non-residents with no agent, business connection or permanent establishment in India cannot practically deduct TDS on fees paid through banking channels. The circular names chartered accountants, lawyers, advocates and solicitors. It also asked payers to send a quarterly list of payees to CBDT’s Foreign Tax Division (taxguru.in, checked 2026-09-28). Circulars issued under the 1961 Act continue under the new Act where they are consistent with it, under section 536(2)(j) (incometax.gov.in, checked 2026-09-28). In practice, overseas clients don’t deduct TDS, and the contractor pays advance tax (kmgcollp.com, checked 2026-09-28). If you pay from an Indian entity or branch, register for TDS and deduct.

US payers. Collect a W-8BEN (W-8BEN-E for a company or LLP). Pay for services is sourced where the work is done (irs.gov, checked 2026-09-28), and foreign-source income paid to a nonresident alien is normally not subject to US tax (irs.gov, checked 2026-09-28). A valid W-8 exempts the payment from Form 1099 reporting and backup withholding. It stays valid until the end of the third calendar year after signing (irs.gov, checked 2026-09-28).

Keep on file: the services agreement with a written IP assignment, each invoice (marked as export under LUT if the contractor is GST-registered), payment confirmations showing the purpose code, and the W-8.

Where payments to India break

• Wrong purpose code. The code goes onto the contractor’s FIRA. A software developer paid under a generic code has a weaker export record. Agree the code before the first payment. Wise won’t send INR without one (wise.com, checked 2026-09-28).
• Short-landed wires. Intermediary banks can deduct fees, so less arrives than was invoiced. For invoices up to ₹10 lakh, the contractor can close the gap with a declaration to their bank. Above that, the bank has to approve the reduction (rbi.org.in, checked 2026-09-28). Choose the OUR charge option on SWIFT, or use a rail that delivers a fixed INR amount.
• Paying late. From 1 October 2026 the full value of a services invoice must be realised within nine months of the invoice date, or twelve months if it is invoiced or settled in rupees. The contractor’s bank follows up on overdue entries and can grant extensions (rbi.org.in, checked 2026-09-28).
• Third-party payer. When a platform pays instead of you, the money comes from a party other than the contractor’s client. RBI lets banks accept such receipts if they are satisfied the transaction is genuine (rbi.org.in, checked 2026-09-28), so the contractor may be asked for the platform agreement.
• Size caps. A ₹30 lakh invoice won’t fit through an aggregator-based rail in one transaction (₹25 lakh cap), and it goes over Wise’s 1.5-million-INR daily limit for business recipients. Send large invoices by direct wire.
• Cost creep on PayPal. On a $2,000 invoice, the 4.40% fee is $88 and a 3–4% conversion markup adds another $60–$80, before the fixed fee. For regular invoices, a bank wire or Wise transfer keeps more of the money with the contractor.