U.S. India Treaty

Last updated: January 24, 2006

Indian residents who are visiting the United States principally for education or training are exempt from US tax on payments which arise outside the US for maintenance or educational purposes.

Although the tax treaty states that Indian students are entitled during their education or training to the same exemptions, reliefs, or reductions in respect of taxes available to residents of the US, such individuals are not treated as US residents for tax purposes by virtue of the treaty. However, Indian students are entitled to certain (but not all) benefits that would otherwise be available to US residents. Those benefits are:

Standard Deduction: Indian students can claim the standard deduction (for the 1999 tax year: $4300 single, $3600 married filing separately) on line 11 of Form 1040NR-EZ. Write the words "standard deduction allowed under US-India Tax Treaty" article 21(2) on Page 2 Question J of the 1040NR-EZ. If you are filing form 1040NR, enter the standard deduction on line 3 of schedule A. In the space to the left of line 3, write "Standard deduction allowed under US-India Tax Treaty." Also enter the amount on line 34 of form 1040NR. By claiming the standard deduction, you cannot claim any itemized deductions.

Spouse Exemption: Indian students who are married may claim a spouse exemption if the spouse is living with the student in the US and if the spouse had no earned income for the 2005 tax year. Such an exemption should be indicated on line 7c of the 1040NR (in the space provided for dependents). Only columns 1 and 4 of line 7c need be completed. If you are claiming a spouse exemption, you cannot file form 1040NR EZ, you must file form 1040NR.

Dependent Exemptions (Children): Additional exemptions may be claimed for children living with the Indian student in the US only if the children are US citizens or permanent residents. This usually means that the children must have been born in the US.

Filing Instructions: To claim benefits under the US/India Tax Treaty, Indian students MUST file Form 1040NR-EZ or Form l040NR, not a 1040. Indian students who are married must have the spouse file a separate return. The couple may not file jointly on one return unless both the Indian student and the spouse are either US citizens or permanent residents.

An Indian student in non-immigrant status (such as F-1) who is married to a US citizen or permanent resident may elect to be treated as a US resident for tax purposes, and file a joint return. However, in that case, the student is subject to US tax on his or her world-wide income, not just US income, and would file a Form 1040. *From Internal Revenue Service Advance Revenue Procedure 93-20, concerning treatment of Indian students and business apprentices under US-India tax treaty, issued March 9, 1993.