UNITED STATES TAX TREATY
PROVISIONS FOR STUDENTS
Tax Year 2012
Article 21 of the treaty stipulates that residents of India who are in the United States to study
do not need to pay U.S. income tax on any payments received from India (or other country
outside the U.S.) for the purposes of maintenance, education or training. Thus, payments
received from U.S. sources (such as a scholarship or assistantship from The University
of Tennessee) are taxable. As most international students are considered "nonresidents"
for tax purposes, they are already exempt from U.S. income tax from income that comes
from outside the U.S. Thus, most Indian students will be required to pay income tax on all U.S. income.
However, students (not scholars) from India, unlike other non-residents, may choose to claim the standard deduction,
instead of itemizing deductions*.
In addition, F-1 and J-1 students may claim an exemption for each spouse or dependent child who
meets the following criteria:
a) is living with the student in the U.S. during the tax year
b) is not claimed as dependent by another taxpayer
c) does not have any gross income in the U.S.
d) if not a spouse, does not hold F-2 or J-2 immigration status
(a spouse who meets criteria a-c may be claimed as a dependent)
e) a U.S. citizen child.
* In most cases, claiming the standard deduction will result in lower taxes than itemizing
deductions.)
[If you have another dependent with you in the U.S., such as a parent, it may be possible
to claim this person as a dependent; such a person would have to be considered a U.S.
Tax Resident. Consult a tax advisor to discuss this possibility.]
Note: If you claim the standard deduction, you may not deduct any itemized deductions,
such as state income tax.
Remember: if you are claiming any dependents, each one must have a Social Security
Number or ITIN (Individual Taxpayer Identification Number)
For the tax year 2012 this translates to the following dollar amounts:
a. An Indian student may take an exemption of $3800 or him/herself and each eligible dependent. (Note eligibility criteria above. No exemption
may be claimed for a dependent who has gross U.S. income.)
b. The standard deduction for a single student or for a married student filing separately
is $5950.
When completing the 1040NR-EZ for your 2012 tax return, enter $5950 on Line 11, and
list treaty information in Question J, Page 2. If you are claiming exemptions for
dependents use Form 1040NR and enter $5950 on Line 38.
(Married students who are Tax Non-residents must normally file tax return separately
(not jointly) unless the spouse is a Tax Resident).
Indian students will be able to subtract both the exemption(s) and the standard deductions
from their income before calculating tax owed (as long as they do not itemize deductions).
($3800 + $5950 = $9750 for 2012) Exemptions are subtracted on Line 13 of the Form
1040NR-EZ or on Line 40 of Form 1040NR.
Note: The amount allowed for exemptions & standard deduction changes each year. This
information will be available in Form 1040 or 1040A (Resident) instructions which
can be seen on the IRS website at www.irs.gov.
Note: See IRS Publication 901, Page 22 for information about tax treaty provisions
for students.
When filling out a W-4 form, Indian students may claim exemptions for any eligible
dependents. We suggest that Non-resident students from India write “NRA-INDIA” in large letters on your W-4. Do NOT file a Form 8233.
IMPORTANT: The treaty benefits described above do not apply to Scholars from India. Scholars may not claim the standard deduction, and may not claim exemptions
for their dependents. See IRS Publication 901 (Page 16) for information about tax
treaty provisions for scholars
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