US-India Income Tax Treaty Explained

The United States and India signed an income tax treaty in New Delhi on September 12, 1989. Its purpose is to keep the same income from being taxed in full by both countries and to say which country has the first right to tax each kind of income. It does not make income exempt from U.S. tax simply because you are of Indian origin or because the income comes from India. This page summarizes the parts of the 1989 text on IRS.gov that matter most to Indian-Americans, NRIs, H-1B workers and green card holders.

What the treaty covers and what it does not

Article 2 lists the taxes covered: federal income taxes imposed by the Internal Revenue Code (but not Social Security taxes) and the Indian income tax. State income taxes are not listed, so check your state's own rules, such as those on our Illinois page.

Social Security and Medicare taxes are handled by separate totalization agreements, not by this treaty. Check the Social Security Administration's current list rather than assuming one applies.

The IRS list of countries with estate or gift tax treaties does not include India. For U.S. property, see NRIs investing in U.S. real estate.

The saving clause

Article 1(3) lets each country tax its residents, and the U.S. its citizens, as if the treaty did not exist. So a U.S. citizen or green card holder generally cannot use the treaty to exclude Indian income from the U.S. return. Instead, Article 25 gives relief by allowing a credit for Indian income tax (see foreign tax credit on India income).

Article 1(4) preserves a few benefits even against the saving clause. Some, such as the student, teacher and government-service articles, are available only to people who are neither U.S. citizens nor green card holders.

Key articles at a glance

These percentages are ceilings in the 1989 text for the country where the income arises. Actual withholding depends on that country's domestic law and on the paperwork you give the payer.

The residency tie-breaker

If both countries treat you as a resident under their own laws, Article 4(2) decides which one is treated as your country of residence for treaty purposes, in this order:

1. The country where you have a permanent home available. If you have one in both, the country with which your personal and economic ties are closer (your center of vital interests).
2. If that cannot be determined, or you have no permanent home in either, the country where you have a habitual abode.
3. If you have a habitual abode in both or neither, the country of which you are a citizen.
4. If you are a citizen of both or neither, the two governments settle the question by agreement.

For a U.S. citizen, the saving clause means the tie-breaker does not stop the U.S. from taxing worldwide income. For a green card holder, a treaty claim of Indian residence means filing Form 1040-NR with Form 8833 and figuring U.S. tax as a nonresident. The IRS warns that this can also trigger the expatriation tax rules for long-term residents. Talk to an immigration attorney as well as a tax adviser before taking this position, because immigration law has its own view of a green card. See residency rules.

Students, teachers and researchers

Article 21 exempts certain support that a student or business apprentice receives from abroad. Under Article 21(2), eligible Indian students and apprentices in the U.S. can also claim the standard deduction and dependents, which most nonresident aliens cannot. See Form 1040-NR. Article 22 can exempt up to two years of pay for qualifying teaching or research.

Claiming treaty benefits on your U.S. return

If a treaty position reduces your U.S. tax, you generally attach Form 8833. The IRS lists as common examples a treaty reduction of tax on gain from a U.S. real property interest, a credit for a foreign tax the Code would not otherwise allow, and more than $100,000 of income when you decide residence under the treaty (Pub. 519, tax year 2025). A penalty of $1,000 per failure can apply to a missed disclosure. Reduced withholding on interest, dividends or rent is claimed with a Form W-8BEN given to the payer and usually does not need Form 8833.

How we can help

We review whether a treaty position is available, prepare Form 8833 and Form 1040-NR when needed, and coordinate with your Indian CA, who advises on how India applies the treaty. See international tax services.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.