Buyer Guides · 6 MIN
Software development in India for US companies: a practical guide
How US companies can work with a software development team in India: contracts, IRS forms, data rules, IP, working hours, and what to verify first.
US companies can work with a software development team in India without special permission, but the paperwork differs from a domestic hire. You need a signed IP assignment, a data processing addendum, the right IRS form from the vendor, and a realistic plan for the 9.5 to 13.5 hour time gap. This guide walks through each in order.
- India has no US-side legal barrier for ordinary business software work. The effort goes into contracts, tax forms, and working hours.
- A foreign vendor entity normally gives you a Form W-8BEN-E, and the IRS says pay for services performed outside the US is not US-source income subject to chapter 3 withholding.
- Your data obligations (state privacy law, HIPAA, GLBA) follow your data, so they follow the work to India through contract terms.
- Get IP assigned in writing, because commissioned software is generally not a work made for hire.
- India does not observe daylight saving time, so the gap with the US changes twice a year.
- Nactore is an AI-native product engineering team in Mumbai that works with US companies and structures each engagement around the client's contract and data terms.
Why do US companies build with teams in India?
The reasons are practical. India has a large pool of senior engineers, the working language is English, and a team in India can extend your build hours into what is your evening. Many US founders also want a partner that owns a problem end to end instead of supplying seats.
None of that guarantees quality. The checks below apply to any vendor, in any country.
What does the contract need that a US vendor contract might skip?
Four items deserve extra attention when the vendor is in India.
| Item | What to include | Why it matters |
|---|---|---|
| Governing law and venue | A US state or a neutral arbitration seat, stated in writing | Disputes are easier when the forum is agreed up front |
| IP assignment | Written, signed assignment of all deliverables on payment | The US Copyright Office says commissioned work is "made for hire" only in nine listed categories, per Circular 30 |
| Data processing addendum | Purposes, sub-processors, security measures, incident timing | State privacy rules require contract terms with service providers |
| Exit and handover | Repos, credentials, docs, and a transition window | You should never depend on one vendor's goodwill |
Have a US attorney review the governing law and enforcement points. We do not give legal advice and neither should a vendor.
How do you pay an Indian vendor and what does the IRS expect?
Ask the vendor for the correct Form W-8. A foreign entity uses Form W-8BEN-E, and a foreign individual uses Form W-8BEN. The IRS describes the entity form on its Form W-8BEN-E page. Once complete, it stays valid through the last day of the third calendar year after signing, unless circumstances change, according to the form instructions.
On the tax treatment, IRS Publication 515 explains that pay for personal services performed outside the United States is foreign source and outside the withholding that applies to US-source income. Where services are performed partly in the US, the pay must be allocated, usually by time. We explain the full mechanics in W-8BEN-E and paying foreign software vendors.
Confirm your own situation with your accountant. Paying a foreign vendor wrongly can leave your company with the withholding bill.
Which data rules follow the work to India?
Your obligations attach to your data, not to the coastline. That shapes the contract more than the geography.
- State privacy laws. California's regulations require a written contract that limits what a service provider may do with personal information. See the CPPA regulations.
- HIPAA. HHS says the HIPAA Rules do not include requirements specific to ePHI processed or stored by a cloud provider or other business associate outside the US, but the risks of the location should be taken into account in your risk analysis. See HHS cloud computing guidance. A business associate agreement is still required.
- Financial data. The FTC Safeguards Rule expects covered firms to spell out security expectations in their contracts with service providers and periodically reassess them. See the FTC's guide for business.
A good vendor brings a data flow diagram without being asked. Ask where code is stored, where test data lives, and which model providers see which inputs.
How big is the time gap and how do you work around it?
India is UTC+5:30 all year. The US shifts for daylight saving, so the gap is 9.5 hours to Eastern Time in summer and 10.5 in winter, and 12.5 to 13.5 hours to Pacific Time. Under federal law, US daylight saving time runs from the second Sunday in March to the first Sunday in November, per 15 U.S.C. 260a. Hawaii and most of Arizona do not observe it.
Teams make it work with a few habits.
- A shared overlap window. One to three hours where both sides are online, fixed on the calendar.
- Written handoffs. Each day ends with a note on what shipped, what is blocked, and what needs a decision.
- A shifted schedule on the Indian side. Engineers on a late shift cover your morning.
- Decisions in writing. Anything decided on a call is posted afterward.
The full table by coast is in US and UK time zone overlap with India teams. For a deeper look at the working rhythm, see working across time zones.
Test the overlap before you sign. Run one real working session at your preferred hour with the engineers who will build the product, and see whether the conversation is good.
What should you verify before starting?
Use this list on any vendor, anywhere.
- Entity details. The legal entity, address, and the person who signs.
- Who does the work. Employees, or a bench of subcontractors you have not met.
- Security basics. Access controls, device policy, and how credentials are shared.
- Evidence of delivery. Live products or code you can review, and references you can call.
- Dispute and exit terms. Governing law, notice periods, and handover duties.
Frequently asked questions
Is it legal for a US company to hire a software team in India?
Yes, for ordinary business software work. Your obligations come from tax rules, your own data laws, and export controls that apply to specific technologies. Check the specifics with counsel.
Do I have to withhold tax when I pay an Indian software company?
Not necessarily. The IRS treats pay for services performed outside the US as foreign source, which falls outside chapter 3 withholding. You still need the right Form W-8 on file, and your accountant should confirm.
Who owns the code built by an Indian team?
Whoever the contract says, as long as it is in writing. Include a signed assignment of all deliverables to your company on payment.
What hours will I actually overlap?
It depends on the schedule. A team that shifts later in the day can overlap two to three hours with US Eastern mornings. Pacific overlap is thinner and needs a late Indian shift.
Treat it as a normal vendor decision
The country changes the paperwork and the clock, not the standard. Hold the vendor to evidence, a clean contract, and a schedule that works.
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