India-US Double Tax Avoidance Agreement (DTAA)

How the India-US tax treaty protects Indian immigrants from being taxed twice on the same income.

Overview

The Double Taxation Avoidance Agreement (DTAA) between India and the U.S. ensures you are not fully taxed by both countries on the same income. Understanding the treaty is essential for Indian immigrants who continue to earn income from Indian sources.

For Indians Moving From India

Article 21 of the India-US treaty provides specific, limited tax exemptions for Indian students and researchers in the U.S. — including an exemption on scholarship income for up to five years. Claim these treaty benefits on Form 1040-NR using Form 8833.

For Indians Already in the US

If you earn income in India (capital gains, rental income, dividends) and pay tax to the Indian government, you must still report that income to the IRS. However, you can use the Foreign Tax Credit (Form 1116) to offset your U.S. tax liability dollar-for-dollar based on what you paid in India.

Key Information

The treaty does not mean you can ignore reporting Indian income to the IRS. It provides mechanisms to avoid paying twice — primarily through the Foreign Tax Credit and treaty-based position elections.

Requirements

Filing Form 1116 to claim the Foreign Tax Credit, or Form 8833 to claim specific treaty-based return positions.

Common Mistakes

Assuming that because taxes were deducted at source (TDS) in India, you do not need to report the transaction on your U.S. return. TDS in India does not relieve you of U.S. reporting obligations.

Practical Tips

Keep your Indian Form 26AS (Annual Tax Statement) during U.S. tax season to prove exactly how much tax you already paid to the Indian government. This is the primary document for claiming the Foreign Tax Credit.