India–U.S. Tax Treaty Essentials for F-1, H-1B, NRIs (2025 Update)

(UNITED STATES) Indian students, workers, and Non-Resident Indians in the United States 🇺🇸 are heading into 2025 with a split picture: the India–U.S. Tax treaty continues to guard against double taxation, while the absence of a social security agreement still drains paychecks for many temporary professionals. the treaty, formally known as the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion, has been in force since December 18, 1990, and remains the key tool for managing cross-border income. But India’s push for a totalisation pact with Washington—revived in 2024 and renewed at the U.S. Trade Policy Forum in early 2025—has yet to produce a deal, leaving H-1B and L-1 employees paying into U.S. Social Security with no clear path to recover those funds if they return to India 🇮🇳 before meeting benefit rules.

Core promise of the treaty (DTAA)

At the core of the treaty, often called the DTAA, is a simple promise: the same income shouldn’t be taxed twice. Under Article 25, someone who is a tax resident of one country but earns income in the other can claim a credit in their home country for tax already paid abroad.

• Example: An H-1B employee with a U.S. salary and interest from bank deposits in India typically pays regular U.S. income tax on wages, while using Indian tax paid on interest as a credit through the DTAA.
• This framework influences decisions for a growing Indian diaspora in the U.S., estimated by community leaders at more than 4.5 million, including students and professionals.

Student-specific benefit: Article 21(2)

One feature of the India–U.S. Tax treaty stands out. Under Article 21(2)—a benefit unique to this treaty—Indian students on F-1 or J-1 visas can claim the U.S. standard deduction even when they are classified as nonresidents for tax purposes.

• For many graduate students on tight budgets, that standard deduction reduces taxable income and lowers withholding on assistantship pay.
• Analysis by VisaVerge.com notes growing awareness among student advisers, who now flag Form 8843 for those with no income and advise tax filings for those with assistantships or Optional Practical Training.

Paperwork and claiming treaty benefits

The process for claiming treaty benefits is paperwork-heavy and time-sensitive. Common requirements and forms include:

• Tax Residency Certificate (TRC) from the home country.
• Clean records of foreign income and taxes paid.
• Form 8833 — attached by U.S. nonresidents when disclosing a treaty position (when required).
• Form W-8BEN — filed with banks, brokers, or clients to get reduced withholding rates on investment income.
• The IRS warns that missing documentation can trigger denials, audits, or delays.

For country-by-country treaty texts and technical notes, officials point readers to the IRS tax treaties page: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties

Tax residency rules and filing types

Practical hurdles arise from residency rules:

• F-1 and J-1 students don’t count U.S. days toward residency for the first five calendar years, usually keeping them nonresident for tax filing during that period.
• H-1B and L-1 workers who spend 183 days or more in the U.S. during a calendar year generally become U.S. tax residents under the Substantial Presence Test.
• A mid-year move can produce dual-status filings:
  1. File Form 1040-NR for the nonresident portion.
  2. File Form 1040 for the resident portion.

Many students must still submit Form 8843 each year, even if they have no wages, to confirm exempt individual status.

Social Security / Totalisation gap — the real shortfall

While the treaty curbs double taxation, it does not address social security portability. There is no Social Security (totalisation) agreement between India and the U.S.

• Result: Indian employees on H-1B or L-1 pay FICA taxes (Social Security and Medicare) like any U.S. employee.
• If they leave the U.S. before completing 10 years (40 quarters) of credited work, they typically do not qualify for Social Security retirement benefits based on U.S. contributions.
• Example: An H-1B employee earning $100,000 per year typically pays about $6,200 toward Social Security alone—funds many will never reclaim without a future pact.
• Many also continue contributing to India’s EPFO or NPS, resulting in overlapping retirement contributions.

Indian officials have pushed for a totalisation agreement for years, citing deals with countries like Germany, Canada, and Australia. Negotiations were rekindled in 2024 and reappeared on the agenda in early 2025, but no timeline exists. Immigration attorneys say the lack of portability is the single biggest financial loss that treaty protections don’t address.

Investment income and reduced withholding (Articles 10–12)

The treaty’s protection of cross-border investment income remains important:

• Articles 10–12 cover reduced withholding rates on dividends, interest, and royalties.
• To claim reduced rates, U.S. payers generally require Form W-8BEN, where the beneficial owner certifies foreign status and claims the treaty article.
• Failure to file can result in default (higher) withholding rates; some platforms block treaty benefits until the form is received.

Annual compliance checklist (students and temporary workers)

Common filing patterns and where to look:

• F-1 students:
  • File Form 8843 even with no income.
  • May claim the standard deduction under Article 21(2).
• Nonresidents claiming treaty positions:
  • Attach Form 8833 when required.
  • Use Form W-8BEN to apply reduced withholding rates for payers.
• India-specific reporting:
  • Residents with foreign assets disclose them in Schedule FA.
  • Nonresidents track status under FEMA and domestic rules.

IRS guidance pages:
– About Form 8843: https://www.irs.gov/forms-pubs/about-form-8843
– About Form 8833: https://www.irs.gov/forms-pubs/about-form-8833
– About Form W-8BEN: https://www.irs.gov/forms-pubs/about-form-w-8-ben

Timing matters: credits under the DTAA apply to the matching income year, so late or mismatched filings can undercut relief.

Enforcement, data sharing, and documentation

Enforcement is tightening:

• Expansion of data-sharing under FATCA increases cross-border transparency.
• FBAR penalties for non-reporting remain steep.
• VisaVerge.com reports more flagging of Indian-origin filers who split time between countries when high-yield accounts or brokerage activity appear in one jurisdiction but not the other.

Preparers’ recommended best practices:
– Report worldwide income to the country that treats you as a resident for that year.
– Take the foreign tax credit where allowed.
– Retain documentary proof of treaty eligibility, including a TRC, bank certificates showing tax withheld, and broker letters citing the treaty article applied.

2025 tax parameters and anticipated compliance tightening

• 2025 U.S. federal tax brackets remain seven-tiered: 10% to 37%.
• The single filer standard deduction is $15,750.
  • For Indian students eligible under the treaty, that deduction can often eliminate tax on modest earnings.
• The IRS is expected to tighten documentation from 2026, meaning closer reviews of treaty positions and increased requests for proof of residency and beneficial ownership.

Preparers advise keeping copies of:
– TRCs
– Bank certificates showing tax withheld
– Broker letters referencing treaty articles

Human impact — how rules affect real people

• A doctoral student arriving in August may remain nonresident for tax purposes for several years, maintain exempt F-1 days for up to five calendar years, file Form 8843 each spring, and—thanks to Article 21(2)—claim the standard deduction that many other nonresident students cannot.
• A software engineer on H-1B could become a U.S. tax resident after crossing the 183-day mark, claim foreign tax credit on Indian interest income under Article 25, but still lose years of retirement savings to FICA with no totalisation relief.

These rules affect budgets, family plans, and decisions to stay or return.

Key takeaways:
– Use the DTAA correctly to prevent double taxation.
– Keep a TRC and disclose treaty positions where required.
– File the right forms on time and retain supporting documentation.
– Assume U.S. Social Security contributions will not be recoverable unless you complete 10 years of credited work or a new pact is implemented.
– The treaty is especially generous to Indian students through Article 21(2), but without a social security agreement, temporary professionals continue to pay into a system that likely won’t pay them back.

The treaty continues to work as designed for income tax relief, but the missing totalisation agreement remains the major unresolved issue for Indian professionals on temporary visas.