TaxTMI 
TaxTMI 
Query Regarding ITR 3 for NRI's
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....uery Regarding ITR 3 for NRI's<br> Query (Issue) Started By: - Vineet Kumar Dated:- 11-8-2026 Last Reply Date:- 12-8-2026 Income Tax<br>Got 6 Replies<br>Income Tax<br>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 profes....
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....sional 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.? Reply By Sanjeev Agarwal: The Re....
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....ply: 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 ....
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....available, I would regard the issue as fact-sensitive rather than give an unqualified YES/NO. Reply By Vineet Kumar: The Reply: 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. Reply By Sanjeev Agarwal: The Reply: Certainly. To determine the PE = Yes/No position more reliably, I only need these key facts: • Home office • Is there a dedicated room/study used exclusively for your consultancy? • Is your home address shown as your GST/business/invoice address? • US client contract • ....
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.... Are you described as an independent contractor/consultant/freelancer? • Does the contract permit you to work from any location, or specifically require India? • 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? • Business structure • Only one US client, or multiple clients? • Any Indian employees/subcontractors? • Any separate commercial office? • Permanence • Is the consultancy intended ....
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....to continue long-term/indefinitely, or is there a fixed end date? • US tax status • For 2025, did you file US Form 1040 or 1040-NR? • What was your US immigration status? • 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....
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....: 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. Reply By Vineet Kumar: The Reply: 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 ....
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....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. Reply By Sanjeev Agarwal: The Reply: 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: ....
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.... • 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/invoicin....
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....g, 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 situat....
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....ed 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. Reply By Vineet Kumar: The Reply: Thanks Sanjeev! I really appreciate your quick response and detailed explaination.<br> Discussion Forum - K....
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