USA – INDIA F-1 & J-1 Tax Treaty (Students & Business Apprentice)
Article 21 of the India – USA Tax treaty stipulates that students or business apprentice who are residents or Citizens of India and are present In the USA principally for the purpose of their education or training shall be exempt from tax in the US from payments which arise outside the USA for purposes of their maintenance, education or training.
By “payments which arise outside USA”, we mean payments from OUTSIDE USA , and NOT those Paid by a business or enterprise based in the United States or paid by a U.S. citizen or resident (including, for this purpose, the Government of the United States or any of its political subdivisions or local authorities, or any agency or instrumentality of such Government).
This means that if a U.S. company makes a payment to an Indian student or business apprentice who is in the United States principally for the purpose of training, that income will be taxable
Will the IRS Tax my grants, scholarships and remuneration from employment I receive as a student?
Yes, however any income or payment derived from outside of the United States will not be taxable as most F1 students are considered as non-residents Aliens and are generally not taxed on foreign source income, until they have passed the substantial presence test, out of status with immigration/USCIS/SEVIS, or the principal purpose of their visit changes.
Indian students and business apprentices may take a standard deduction equal to the amount allowable to U.S Resident Aliens and Citizens – see Article 21(2).
For 2020 and later, a non-itemized qualified charitable contribution deduction can be claimed on line 10b of the Form 1040-NR. The deduction is limited to $300.00
Indian students and business apprentices Filing Form 1040-NR are not eligible for the Recovery Rebate Credit
Note that Non-Residents Aliens such as students or Business Apprentice cannot file Married Filing Joint Returns.
The Benefit of this treaty shall extend only for such period of time as may be reasonable or customarily required to complete the education or training, therefore, If a student who is resident of India remains in the USA for a period of time exceeding the period during which he is present principally for the purpose of his education or training, the US may tax the individual , but only for the period after the purpose of the student’s visit has changed.
A student visiting the United States from India is considered to be a resident of India if he is a resident of India the year he arrives in the United States or in the year immediately before his arrival in the United States.
IMPORTANT: The treaty benefits described above do not apply to Scholars from India. Scholars may not claim the standard deduction, and may not claim dependents. See IRS Publication 901 (Page 17) for information about tax treaty provisions for scholars
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***Disclaimer: I am a tax accountant and a CPA licensed in Massachusetts , but I am not your accountant or advocate (Unless you have signed up to my services). This communication is not intended as tax advice, and no tax accountant -client relationship results**