Federal Income Often Used By States
Income tax treaties do not cover state income taxes. However, many states define income based on federal taxable income or federal adjusted gross income.
Some states allow students and scholars to exempt the same amount of income from state taxes and, in other states, they must add back in the treaty exclusion.
The India treaty allows students to claim the standard deduction on their federal return. Since some states base the state income tax on the federal adjusted gross income, Indian students do not always benefit from their treaty provisions on the state returns.