Building AI agents for a startup in Austin, getting $6,000 a month in your savings account and wondering if you’re doing anything wrong? Receiving foreign money isn’t the problem. How it’s invoiced, received and reported usually is. At ₹88 to the dollar, that retainer comes to about ₹63 lakh a year, and both the GST and income tax systems can see it.
How Your Income Is Classified
For income tax, consulting fees from abroad are business or professional income, taxed in India because you’re a resident. For GST, the work is an export of services if the client and place of supply are outside India and you’re paid in foreign exchange (Section 2(6), IGST Act). Exports are zero-rated, but zero-rated doesn’t mean you can skip the paperwork.
The 5 Mistakes
1. No GST registration and no LUT. ₹63 lakh is far past the ₹20 lakh registration threshold, and export receipts count towards it. Without a Letter of Undertaking (Form GST RFD-11), you have to pay 18% IGST and claim it back as a refund. If you aren’t registered at all, the department can treat the receipts as unreported taxable supplies.
2. The wrong purpose code, or no FIRA. Software and AI implementation work generally goes under purpose code P0802. Pure business or management consulting goes under P1006. If your bank tags the money as family maintenance or something else unrelated, your proof of export breaks. Keep the FIRA for every payment (our FIRC guide explains the documents). Under RBI’s Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, export proceeds now have to be realised within nine months (twelve for rupee invoices).
3. Assuming Section 44ADA without checking. “Information technology” and “technical consultancy” are notified professions, so presumptive taxation at 50% of receipts is usually available up to ₹75 lakh, provided cash receipts stay within 5%. From Tax Year 2026-27, this sits in Section 58 of the Income-tax Act, 2025. “Technical consultancy” isn’t defined in the Act, though, and if part of what you bill is resold API credits or GPU time, that portion looks more like trading than a profession. Raise the retainer to $7,500 a month (about ₹79 lakh) and you’re out of 44ADA altogether.
4. Skipping advance tax. Foreign clients don’t deduct Indian TDS, so nothing is paid on your behalf through the year.
| Item | Amount |
|---|---|
| Gross receipts | ₹63,36,000 |
| Deemed income at 50% | ₹31,68,000 |
| Tax under new regime slabs | ₹5,30,400 |
| Plus 4% cess | ₹5,51,616 |
Under the presumptive scheme, you can pay the full amount by 15 March. Miss it and interest under Sections 234B and 234C runs at 1% a month. Our advance tax guide has the instalment dates.
5. Ignoring foreign tax and foreign balances. If a client’s country withholds tax, claim credit using Form 67 for FY 2025-26, or the new Form 44 for income from 1 April 2026, before your ITR due date (how to claim it). Money parked abroad in a Wise or Stripe balance raises a Schedule FA question. Practitioners differ on whether such balances are “foreign accounts”, so we lean towards disclosure.
At Tax Vic, we set up LUT-based export invoicing for consultants billing abroad, check purpose codes and FIRAs each quarter, and work out advance tax under Section 44ADA.
A Live Grey Area: EDF Filing
From 1 October 2026, service exporters must file an Export Declaration Form with their bank, within 30 days of the end of the invoice month. On 7 October 2026, RBI said individuals with contracts of a personal nature aren’t covered, but no FAQ has been issued yet and some banks are still asking freelancers for EDFs. If you bill through an LLP or company, plan to file. If you bill as an individual, keep invoices ready in case your bank asks.
Which Route Fits You?
For a solo consultant whose real costs (laptop, API spend, subscriptions) stay under 30% of receipts, 44ADA is usually the better deal. If you’re paying subcontractors heavily, regular books with actual expenses may cost less tax, and you’d file ITR-3. Run both numbers every year.
Key Takeaways
- Register for GST and file the LUT before the year’s first foreign invoice.
- Use P0802 or P1006 as the purpose code, and keep a FIRA for every receipt.
- 44ADA applies up to ₹75 lakh of receipts, with cash at 5% or less.
- Pay advance tax: presumptive taxpayers can pay it all by 15 March.
- Claim foreign tax credit on Form 67 (FY 2025-26) or Form 44 (from Tax Year 2026-27).
Billing foreign clients for AI work and unsure your setup holds up? Tax Vic checks your invoices, purpose codes and AIS, registers you under GST with an LUT, and plans your advance tax for the year. Email info@taxvic.com or WhatsApp +91-9311070842.
Author: CA Reetu Bhandari
Published: 4 November 2026
Last Reviewed: 2 November 2026
