I have a question regarding the income exempt by the US - India tax treaty. I was a student from Jan 04 to Jun 04, then on a OPT from Jun 04 to Oct 04 and on a H1 from Oct 04 through. I have a W2 from my University (for part of the summer that I was working over there), a W2 from my employer (starting June 04) and a 1042 S for the spring semester (Jan to Apr).
Income reported on 1042 S was a felowship that I received from my university for my expenses (7500$ for spring sem). I also got a waiver for my tution, but that was not reported (as I believe tution and fees is exempt from taxes).
Last year I received a 1042 S for the entire year (15000$) and I was advised by the International Student Association that I can claim tax treaty exemption for the entire amount. I was reading through the IRS publications (pub 901) for students and apprentices and it seemed that I was wrong in doing so.
An individual who is a resident of India immediately before visiting the United States and who is temporarily in the United States primarily for studying or training is exempt from U.S. income tax on payments from abroad for maintenance, study, or training. The exemption does not apply to payments borne by a permanent establishment in the United States or paid by a U.S. citizen or resident, the U.S. Government, or any of its agencies, instrumentalities, political subdivisions, or local authorities.
And univ being a permanant establishment in US we wont be able to claim this exemption. But most colleges seem to advise their Intl students to do the same thing. (see link for RPI for this year)
http://www.rpi.edu/dept/doso/ISSS/pu...0returns.ppt#2
See the example for the korean student who claims both scholarship and wages for tax treaty exemption... that is what they claim Indian students should do too (but since there is no limit on max amount of compensation on our treaty, they say we can claim full amount)
I am confused as to what to do at this stage. Are they accurate in their reading of the situation that we can claim all our compensation (on 1042 S) as exempt from taxation?
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