My wife and I are both grad students.

I was a student for the entire year of 2006- F1 visa
My wife changed status from L1 to F1 in aug 2006

If our combined annual income for 2006 is lower than the total tuition paid in the year, are we exempt from federal taxes according to the Indo-US tax treaty?

If my wife's change of status prevents her from claiming such an exemption,can I file "married filing separately" to get this exemption?

Thank you for your time and consideration.

You really have to say which country you live in. Federal govt. could mean US or Canada. If you are Canada I think you should call the Dept. of Indian Affairs in Ottawa to clarify your status on education for you and your wife. I believe you receive an allowance, and in that case would not be taxable or deductible. :)

Sorry, I jumped the gun, you did say indo-US treaty. For that I will defer to our expert here to answer your question. Sorry.

Tuition PAID means NOTHING when you file a non-resident tax return.

You each must file a non-resident tax return (Form 1040NR-EZ) if you BOTH earned income UNLESS each of you earned less than $3,300, in which case NO tax return is legally required. However, you MAY still want to file to get the withheld income taxes back.

If your individual incomes exceeded $3,300, you should file Form 1040NR-EZ. You each get a $3,300 personal exemption and, under the tax treaty with India, a $5,150 standard deduction due to your F-1 visa status.

For your wife, to claim the $5,150 standard deduction, she MUST have earned at least that much money as a F-1 student. If all of her income is from her L-1 status, she CANNOT CLAIM the standard deduction.