Can I claim standard deduction under US-India Tax Treaty Article 21(2) if my visa changed from F1 to H1B?

[feuerfawkes]

Hi,

I was on F1 student visa from January 1, 2022 to September 30, 2022. My visa changed to H1B on October 1, 2022. I entered the United States in August 2018 on F1 visa, and based on the substantial presence test, I am filing as a non-resident alien for 2022 tax purposes. I am a citizen of India.

My question is whether I can claim the standard deduction under US-India Tax Treaty Article 21(2) for 2022 given that I was on the F1 student visa only for 9 months in 2022.

ARTICLE 21

Payments Received by Students and Apprentices

1. A student or business apprentice who is or was a resident of one of the Contracting States immediately before visiting the other Contracting State and who is present in that other State principally for the purpose of his education or training shall be exempt from tax in that other State, on payments which arise outside that other State for the purposes of his maintenance, education or training.

2. In respect of grants, scholarships and remuneration from employment not covered by paragraph 1, a student or business apprentice described in paragraph 1 shall, in addition, be entitled during such education or training to the same exemptions, reliefs or reductions in respect of taxes available to residents of the State which he is visiting.

3. The benefits of this Article shall extend only for such period of time as may be reasonable or customarily required to complete the education or training undertaken.

4. For the purposes of this Article, an individual shall be deemed to be a resident of a Contracting State if he is resident in that Contracting State in the taxable year in which he visits the other Contracting State or in the immediately proceeding taxable year.

See publication 901, page 22, India for more information: https://www.irs.gov/pub/irs-pdf/p901.pdf

[ErnieS0]

Yes. Students and business apprentices who are eligible for the benefits of Article 21(2) of the United States-India Income Tax Treaty claim the standard deduction, provided they do not claim itemized deductions.

You will still have to file a nonresident income tax return (Form 1040-NR).

TurboTax does not support this form. You can file with TurboTax partner Sprintax.com.

Learn more at Students and business apprentices from India.

[feuerfawkes]

@ErnieS0 Thank you for your response. The problem that I am having is that I don't know if I am eligible for the benefits of Article 21 (2). Based on my situation, can you please help me understand if I am eligible for standard deduction under this treaty given that I was a student only for 9 months of the year, i.e., from Jan. 1, 2022 to Sep. 30, 2022? Do I need to be a student for all of the year to be eligible for standard deduction under the benefits of this treaty?

Sprintax suggests that I am eligible for these benefits, but I have heard conflicting answers here on similar posts.

Thank you for your assistance.

[DaveF1006]

 Yes. Publication 519 claims you can use the standard deduction if you do not itemize. This is on page 28 of the publication.

[feuerfawkes · Accepted solution]

I found the answer that I was looking for.

Quoting a paragraph from Article 21 of US-India Tax Treaty Technical Explanation document:

If a student who is resident in a Contracting State remains in the other State for a period of time exceeding the period during which he is present principally for the purpose of his education or training, the Contracting State which he is visiting may tax the individual under its national law, but only for the period after the purpose of the student's visit has changed.

My understanding is that you can claim standard deduction if the income you earned on F-1 was greater than the deduction amount.

Source: https://www.irs.gov/pub/irs-trty/inditech.pdf

Source for the actual treaty: https://www.irs.gov/pub/irs-trty/india.pdf