Free template · 2025

Contractor agreement for Indian startups.

No IP clause means your contractor owns your product. No TDS means a tax notice. Here's what your contractor agreement actually needs — and the risks most founders don't know about.

Quick answer

A contractor agreement in India must include: scope of work, payment terms and TDS treatment, explicit IP assignment (without it, the contractor owns your code), confidentiality, term and termination, clear non-employee classification, and Indian governing law. Misclassifying a contractor as an employee can trigger backdated PF, ESI, and gratuity liability.

Generate your agreement free →

Why does a proper contractor agreement matter in India?

Your contractor owns your IP by default
Indian copyright law says the creator owns the work. Unlike employment, there's no automatic transfer to the company. Without a written IP assignment, the contractor owns the code they wrote for you.
Missing TDS = tax notices
Companies are required to deduct TDS on contractor payments. Founders who don't know this get surprised with penalty notices months later. It's not optional.
Investors check contractor docs
During due diligence, investors specifically look for contractor agreements and IP assignment. Missing agreements for past contractors who built key features can delay or block a funding round.

What to include

What must every Indian contractor agreement include?

1
Clearly say it's a contract, not employment
Write: "The contractor is an independent contractor, not an employee. Nothing in this agreement creates an employer-employee relationship." This matters for tax (TDS vs. salary), PF obligations, and labor law applicability.
2
Scope of work
Describe exactly what they're delivering — a feature, a design, a campaign. Vague scope leads to scope creep and payment disputes. Use bullet points. If the project is ongoing, define how new work is added (a change-order or statement-of-work process).
3
Payment terms and TDS
State: the fee, when invoices are due, and payment timeline (e.g., within 15 days of invoice). Also address TDS — under Indian tax law, companies must deduct TDS (usually 10%) on payments to contractors above ₹30,000. Document whether the contractor is GST-registered.
4
IP assignment
Under Indian copyright law, the contractor owns everything they create — unless they assign it in writing. This is the most dangerous gap in most startup contractor setups. Add: "All work product created under this agreement is assigned to [Company] upon payment."
5
Confidentiality
The contractor will access your code, product, strategy, and sometimes customers. A confidentiality clause that survives the engagement (typically 2 years after) is essential.
6
No-poaching and exclusivity (where relevant)
Non-solicitation: the contractor won't approach your clients or team members. Exclusivity: if you need the contractor to work only for you during the engagement, say so explicitly — otherwise they can work for your competitor at the same time.
7
Termination with notice
Either side can end the engagement with reasonable notice (7–30 days depending on project size). Also cover what happens to work-in-progress — is it handed over? Is partial payment owed?

Sample language

What do the key contractor agreement clauses look like?

Independent contractor clause

"The Contractor is an independent contractor, not an employee. Nothing in this Agreement creates an employer-employee relationship. The Contractor is solely responsible for their own taxes."

IP assignment clause

"All work product, code, designs, and deliverables created by the Contractor in connection with this Agreement are assigned to [Company] upon full payment. The Contractor retains no rights in such work product."

TDS clause

"[Company] shall deduct TDS on payments as applicable under the Income Tax Act. The Contractor shall provide a valid PAN for TDS purposes and shall be issued Form 16A for TDS deducted."

What to avoid

What contractor agreement mistakes cause problems later?

✗
No IP clause — your contractor owns your product
This is not theoretical. Contractors who've built core product features for Indian startups have claimed ownership of that code. Without a written IP assignment, they're right. Every contractor agreement needs IP assignment. Every single one.
✗
Paying without TDS and getting a tax notice
Under Section 194C/194J of the Income Tax Act, companies must deduct TDS on contractor payments above ₹30,000. Founders who don't know this get surprised with tax notices and penalties. If in doubt, deduct and deposit — it's the contractor's credit, not your loss.
✗
Classifying an employee as a contractor to save on PF
If someone works 9–6, gets a fixed monthly payment, reports to a manager, and uses your office — they may legally be an employee regardless of what the agreement says. Labour officers look at the actual working relationship, not just the paper. Misclassification exposes you to backdated PF, ESI, and gratuity.
✗
No scope definition — and then a payment dispute
The most common contractor dispute: the startup thinks X was included, the contractor thinks it wasn't. Define scope in writing, and add a clause about how changes to scope are handled. It saves both sides a lot of pain.
✗
Agreements that miss the governing law
Contractor agreements without a governing law clause create jurisdiction ambiguity if the contractor is in a different city or state. Always specify Indian law and the city for disputes.

Related guides

Freelance developer contract→Mutual NDA India→Employee offer letter→

FAQ

Common questions

Yes. It's a contract under the Indian Contract Act, 1872. Once signed by both parties, it's binding. It's also your primary document for tax (TDS), IP ownership, and dispute resolution.

For most standard freelance engagements — design, development, marketing — yes. A signed agreement with IP assignment, confidentiality, scope, and payment terms covers the key risks. For large, complex projects or contractors with access to highly sensitive systems, a more detailed agreement (or legal review) is worth it.

Yes, if the payment exceeds ₹30,000 per contract or ₹1,00,000 in a financial year. The TDS rate is generally 1–10% depending on the nature of work (Section 194C for work contracts, 194J for professional services). Deposit the TDS to the government and issue Form 16A to the contractor. Missing this triggers notices and penalties.

In India, there's no legal distinction. Both are independent contractors. The same tax rules (TDS), IP rules, and contract principles apply to both.

If the contractor is genuinely independent — sets their own hours, works for multiple clients, controls their method of work — they're a contractor. If in practice they function like an employee (fixed hours, single client, supervised work), there's reclassification risk. The agreement alone doesn't determine the classification — the actual working relationship does.

The contractor owns everything they've created so far. You can fix this with a retroactive IP assignment agreement — have the contractor sign a document assigning all past work to you. Do this before raising funding.

A confidentiality clause within the contractor agreement is usually enough for active engagements. A standalone NDA is useful for early conversations before you have a signed agreement — as a bridge.

If the person is working exclusively for you on an ongoing basis, is integrated into your team, and functions like a full-time employee, you should consider formal employment. Using a contractor agreement in that situation creates legal and tax risk.

Last updated:

Contractor agreement ready in 2 minutes.

Firmly generates contractor agreements with IP assignment, TDS clauses, and scope-of-work sections built for Indian startups.

Try it free →