The US-India Tax Treaty provides several important benefits to Indian nationals in the US, especially for those on F-1, J-1, and H-1B visas.
If you’re a nonresident alien from India, the India tax treaty with the United States can reduce your tax liability—but only if you know how to claim it correctly.
In this post, we’ll break down the key parts of the treaty, including Article 21, deductions, capital gains, and how to claim benefits using Form W-8BEN.
Tax treaty benefits by visa type
1. F-1 Students (Nonresident Aliens)
Under Article 21(2) of the US-India Tax Treaty:
- F-1 students from India can claim the standard deduction, just like US citizens.
- This is a unique benefit for Indian students—most other nonresidents cannot claim this.
- In tax terms, this can reduce your taxable income by $13,850 if you’re single.
2. J-1 exchange visitors (Internship, Trainees)
- Similar to F-1 students, J-1 visa holders from India can also claim the standard deduction if they are treated as nonresidents.
3. J-1 Teachers and Researchers
- J-1 Teachers and Researchers may be exempt from income tax from teaching and/or research under Article 22 in full for the period of 2 years.
- The Teachers and Researchers article in the US-India tax treaty has a retroactive clause. This means that if the J-1 Teacher/Researcher stays even 1 day over the 2 years period, they may need to pay tax not just in the current tax year, but in the prior years when they claimed the tax treaty under Article 22.
4. H-1B visa holders
- Typically, H-1B holders become resident aliens after meeting the Substantial Presence Test.
- H1B holders may be able to claim a tax treaty benefit under articles related to:
Independent personal services – if they stayed less than 90 days in the current tax year, or
Dependent personal services – if they stayed less than 183 days and their income is paid by a foreign resident employer.
What is Article 21(2) of the US-India Tax Treaty?
Article 21 is particularly significant for Indian students and trainees.
It means that a resident of India who is temporarily present in the United States primarily for education or training purposes and who is not treated as a US tax resident is entitled to the same deductions for expenses as a US citizen.
Specifically, under Article 21(2), such individuals can:
- Claim the standard deduction
- Take advantage of itemized deductions, such as those related to charitable contributions or state and local taxes
Essentially, this article allows Indian students to take a standard deduction equal to the amount allowable on Form 1040.
However, it’s important to note that you cannot claim personal exemptions (these deductions were eliminated in 2018).
Capital Gains Tax and the US-India tax treaty
The tax treaty does not provide a specific exemption for capital gains for Indian nonresidents.
Therefore, short-term capital gains (assets held for one year or less) are taxed at ordinary income tax rates.
However, long-term capital gains (assets held longer than one year) may be taxed at favorable rates of 0%, 15%, or 20%, depending on the individual’s total income and filing status.
Form W-8BEN and the US-India tax treaty
Form W-8BEN, also known as the “Certificate of Foreign Status,” is the form that Indian nationals will need to complete if they earned certain types of income while in the US.
You’ll need to submit it when asked by your withholding agent, in this case, your employer in the US.
For short-term work in the U.S., Indian residents may claim exemption using Form 8233, however, Form W-8BEN may impact income such as interest or dividends.
Without submitting a W-8BEN, treaty benefits cannot be applied, and full 30% withholding will likely occur.
You can fill out forms 8233 and W-8BEN with Sprintax Forms. Get started here.
For those unsure of their eligibility for treaty claims, Sprintax can help!
We provide expert guidance and tailored support to help nonresidents maximize their tax treaty benefits.
With Sprintax, you can file a fully compliant tax return as well as automatically claim tax treaty benefits that apply to you!
Get started with Sprintax today!
