What is the legal and tax implication of a US company (Texas C Corp) hiring employees directly in India

I am the co-founder/shareholder of a US based software startup (Texas C Corp). Due to some personal reasons I have had to move to India and to make the most of it, I am planning on hiring a few developers and UX designers directly in Mumbai, India.

I currently don't want to form another entity in India but want to directly pay from the US company the salaries for these Indian employees, rent for a office facility, equipment etc. Eventually if this model works we may want to consider forming an entity but until then, I was wondering if anyone would have answers to the following questions:

a) Are there any restrictions on a US company doing these kind of transactions in another country
b) Is there any legal and/or tax implication for the US company?
c) Would there be any legal and/or tax implication for the employees that are hired?

At this point, we don't want to consider elance, odesk or similar companies and we dont want to contract with an existing software company in India.

Thank you for your help in advance.

You didn't get an answer until now because it is a very complex issue. Generally, as you might have already learned, payments to foreign counterparts require withholding by your company to the IRS, which these counterparts will have to claim on their respective NR tax returns. Check the treaty if there are specific provisions to override that.

If you're a US person - holding a foreign entity in India may require additional reporting in the US. Even if you don't formally form an entity in India, your arrangement may require reporting in the US (foreign partnership, for example).

If you're not a US person (I guess that's why its a C-Corp and not a S-Corp?), then the corporation is required to withhold taxes from your distributions.

Bottom line - you need to work with a good CPA adept in international taxation, and specifically the US-India tax treaty. Get a professional advice, don't rely on freebies on the Internet because you get what you pay for.