India US Tax Treaty - Information for International Students India

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India US Tax Treaty Explained:

On March 9, 1993 the U.S. Internal Revenue Service issued Revenue Procedure 93-20 explaining the provisions of Article 21(2) of the U.S.-India tax treaty that are of benefit to Indian students in the U.S. With the issuance of this revenue procedure non-resident Indian students must follow the instructions set out in the procedure to claim their treaty benefits.
If you are an Indian student who is a non-resident for federal income tax purposes (usually someone in the U.S. on an F-1 or J-1 student visa for less than six years), here's what you should do to take advantage of the U.S.-India tax treaty:

For the 2004 Tax Year

1) Complete and file Form 1040NR, "U.S. Nonresident Alien Income Tax Return," or Form 1040NR-EZ, “U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents.” (If you are single, or if you are married but your spouse works and files a separate tax return, in most cases you may use Form 1040NR-EZ.) The treaty does not allow you to file Form 1040, 1040A or 1040EZ.
2) If you are single, claim one personal exemption for yourself (you may use Form 1040NR-EZ in most cases). If you are married, claim one personal exemption for yourself and -- if your spouse (1) had no income, and (2) is not the dependent of another taxpayer -- claim an additional personal exemption for your spouse (you must use Form 1040NR in this case). (Each personal exemption is worth $3,100 in 2004.)

To claim a personal exemption for your spouse write his or her name in column (1) of box 7c on page 1 of Form 1040NR and in column (2) of bosx 7c enter his or her SSN or ITIN. Write "spouse" in column (3) of box 7c and place the number 1 on the line to the right of box 7c.

3) In a few cases you may also claim a personal exemption for a dependent child in box 7c of Form 1040NR, but only if your child is an U.S. citizen or tax resident. If your child is also a non-resident for federal income tax purposes, which is usually true of a child in F-2 or J-2 status for example, you may not claim a personal exemption for the child.
4) In addition to your personal exemption(s), claim the standard deduction appropriate to your filing status. For 2004 this amount is $4,850 if your filing status on page 1 of Form 1040NR or Form 1040NR-EZ is single ("Other single nonresident alien") and is the same amount ($4,850) if your filing status is married ("Other married nonresident alien"). (You cannot claim the "married filing jointly" standard deduction even if you are married, or the "head of household" deduction if you are a single parent.)

To claim the standard deduction on Form 1040NR write "Standard Deduction Allowed Under U.S.-India Tax Treaty" on line 3 of Schedule A (page 3) of Form 1040NR; place the appropriate amount for your filing status in the column to the right of line 3 and repeat on line 17. Place the same amount on page 2, line 36, "itemized deductions," of Form 1040NR. On page 5 of Form 1040NR, write "India" on the country line of item M and write, "standard deduction [or "standard deduction and personal exemption..."] claimed under Article 21(2)" on the lines beneath question M.

To claim the standard deduction on Form 1040NR-EZ place the appropriate amount for your filing status on page 1, line 11. On page 2, item J; write “India” as your tax treaty country and on the line below write "standard deduction [or "standard deduction and personal exemption..."] claimed under Article 21(2)."

If you claim the standard deduction, you cannot also itemize deductions such as state and local income taxes, charitable contributions or employee business expenses. Obviously, if your itemized deductions exceed the amount of your standard deduction, you should itemize rather than use the standard deduction.

For Previous Tax Years As Far Back as 2001

If you failed to claim the U.S. India tax treaty on your 2001, 2002 or 2003 federal income tax returns, or if you filed the wrong form for 2001, 2002, or 2003 you should file amended returns for these years. An amended return for 2001 can be filed until April 15, 2005, for 2002 until April 15, 2006, for 2003 until April 15, 2007.

To file an amended federal income tax return:

1) Obtain a copy of Form 1040X, and a copy of Form 1040NR or 1040NR-EZ and instruction booklet for the year or years required by calling the IRS forms number, (800) 829-3676, or accessing the IRS website at http://www.irs.gov (click on Forms and Publications, then click on previous years, then click on year and then scroll down for forms).
2) Complete Form 1040X for each year and write in large letters across the top of your new Form(s) 1040NR "AMENDED RETURN;" complete the form(s) similar to the way you completed your 2004 return, as described above. (But note, the amount of the standard deductions and the personal exemption are different in each year; consult the 1040NR-instruction booklet for the appropriate year.)
3) Prepare a short cover letter stating that you are filing an amended return(s) because of the U.S.-India tax treaty. Attach your letter to Form 1040X(s) and your amended Form 1040NR(s). Also, attach a copy of your original income tax return(s) if available; this will speed consideration of your amended return(s).
4) Send to: IRS Center, Philadelphia, PA 19255.

Hope this helps!