Query Regarding ITR 3 for NRI's

[Vineet Kumar]

I am an Indian citizen who lived and worked in the US from Apr-2021 to 6-Feb-2026. I returned to India on 6-Feb-2026 and my residential status for FY 2025-26 remains Non-Resident (NRI) based on the number of days stayed in India.

After returning, I started working as a freelance software consultant / sole proprietor for a US client. I provide software development/technical consultancy services remotely from India, work from my residence, have no employees or separate commercial office, and receive payment in USD. I am GST registered and export services under LUT. The professional income is being offered to tax in India through ITR-3.

While filing ITR-3 for AY 2026-27, Part A-General asks:

"In case of non-resident, is there a permanent establishment (PE) in India?"

Should I select Yes or No?

Section 92F defines PE to include a fixed place of business through which business is wholly or partly carried on. However, the India-US DTAA also uses the concept of a "fixed base" for independent professional services.

Does working as an NRI sole proprietor/freelancer from my home in India constitute a PE for this specific ITR-3 disclosure? Or is this question mainly intended for foreign enterprises/non-residents operating in India through a branch, office, agent, etc.?

[Sanjeev Agarwal]

On the facts stated, I would not treat "working from an Indian residence" as automatically establishing a PE, nor would I say that an individual sole proprietor can never have a PE. The answer requires examining the applicable PE definition, the scope of the ITR-3 disclosure, and, where relevant, the India-US DTAA provisions relating to PE/fixed base.

The facts that the consultancy is actually and continuously carried on from a particular Indian residence make a PE argument possible, but the conclusion should not be based merely on the existence of a home office. The treaty-residence position and the precise legal basis for applying the PE concept to the ITR disclosure also need to be established. Accordingly, on the limited facts available, I would regard the issue as fact-sensitive rather than give an unqualified YES/NO.

[Vineet Kumar]

Thanks Sanjeev. But, what other facts will help in arriving at the correct answer?

I am reporting myself as an NRI in ITR-3. I will also be reporting income earned from my freelancer work. I am maintaining books of account.

[Sanjeev Agarwal]

Certainly. To determine the PE = Yes/No position more reliably, I only need these key facts:

1. Home office

   • Is there a dedicated room/study used exclusively for your consultancy?

   • Is your home address shown as your GST/business/invoice address?

2. US client contract

   • Are you described as an independent contractor/consultant/freelancer?

   • Does the contract permit you to work from any location, or specifically require India?

3. US client relationship

   • Do you have authority to sign/negotiate contracts on behalf of the US client?

   • Does the client have any right/access to your Indian premises?

   • Are you effectively their employee or genuinely independent?

4. Business structure

   • Only one US client, or multiple clients?

   • Any Indian employees/subcontractors?

   • Any separate commercial office?

5. Permanence

   • Is the consultancy intended to continue long-term/indefinitely, or is there a fixed end date?

6. US tax status

   • For 2025, did you file US Form 1040 or 1040-NR?

   • What was your US immigration status?

7. Books/registrations

   • Does your accounting/business documentation describe your residence as your business/professional premises?

   • Are you claiming any home-office expenses?

Most important

If you give me just these 5 answers, I can narrow it down substantially:

(A) Dedicated home office: Yes/No
(B) Home address on GST/invoices: Yes/No
(C) Contract says independent consultant and can work from anywhere: Yes/No
(D) Authority to conclude contracts for US client: Yes/No
(E) US 2025 return: 1040 or 1040-NR

Those facts should allow us to assess the ITR-3 PE disclosure separately from the India-US DTAA fixed-base issue, which is the key distinction here.

[Vineet Kumar]

Thanks Sanjeev, please see my responses below:

(A) Dedicated home office: No

(B) Home address on GST/invoices: Yes

(C) Contract says independent consultant and can work from anywhere: Independent consultant: Yes. No specific requirement to work from India; contract does not expressly state 'work from anywhere'.

(D) Authority to conclude contracts for US client: No

(E) US 2025 return: 1040 or 1040-NR: 1040

Additional facts:

- US client has no right/access to my Indian residence.

- I am genuinely an independent contractor, not an employee.

- One US client during FY25-26.

- No Indian employees/subcontractors.

- No separate commercial office.

- Contract is fixed-term through Sep-2026, though extension is possible.

- US immigration status was H-1B.

- Residence is used as GST/business/invoice address.

- No home-office expenses claimed.

[Sanjeev Agarwal]

Summary - PE disclosure in ITR-3

Based on the facts provided, "NO" appears to be the more defensible answer to the ITR-3 question: "In case of non-resident, is there a permanent establishment (PE) in India?"

Key facts supporting NO:

• You are an individual sole proprietor, not a foreign company/branch.

• You are a genuine independent consultant, not an employee of the US client.

• No dedicated home office or separate commercial premises.

• No employees or Indian subcontractors.

• US client has no right/access to your residence.

• You have no authority to conclude contracts on behalf of the US client.

• Only one US client.

• Contract is fixed-term until September 2026, which creates some continuity but does not by itself establish a PE.

• No home-office expenses are claimed.

• Home address is used for GST/invoicing, but this alone should not automatically make the residence a PE.

The principal residual risk is that you actually perform the consultancy from your Indian residence and use that address as your business/GST/invoice address. A broad fixed-place argument could therefore be raised. However, absence of a dedicated professional establishment, client access, agency authority, employees and other business infrastructure materially strengthens the NO position.

Also, PE and "fixed base" are not identical concepts. The India-US DTAA separately addresses independent professional services through the "fixed base" concept. That should not automatically be equated with PE.

One further technical point: section 92F's PE definition is situated within the transfer-pricing provisions, and its wording specifically refers to sections 92, 92A-92E. Therefore, it should not be mechanically assumed that every home-based non-resident professional has a PE merely because he works from a fixed residential location.

Conclusion

Recommended ITR-3 selection: NO, with a short internal tax-file note documenting the above facts and reasoning.

This is a reasonably defensible position, not a zero-risk position. The separate India-US DTAA Article 15/fixed-base and treaty-residence analysis should also be documented if treaty relief is relevant.

[Vineet Kumar]

Thanks Sanjeev! I really appreciate your quick response and detailed explaination.

AI Summary

Permanent establishment disclosure for home-based non-resident consultants depends on premises, client control, authority, business infrastructure and treaty analysis.
Permanent-establishment disclosure in ITR-3 for a non-resident independent consultant working from India is fact-sensitive. Working from a residence does not automatically create a PE. Relevant factors include dedicated premises, use of the address for GST or invoicing, client access, authority to conclude contracts, employees or subcontractors, separate office premises, business continuity and home-office expenses. PE and the India-US DTAA fixed-base concept for independent professional services are distinct. Section 92F should not be mechanically applied outside its transfer-pricing context. The position should be supported by contemporaneous documentation and treaty-residence analysis where relevant.