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I am an undergraduate computer science student, resident and citizen of India, I'll be working as an Independent student contractor for a US based software company from my home country (India), during this program I will never go to US and all my payments are a student stipend.

I am in no way a company employee and won't enjoy any benefits of a regular employee, moreover my income is project based there is no fixed based salary.

The company asks me to fill W-8BEN form for tax withholding, but I am not sure if I should pay tax to Indian Govt or to the US state. My questions are mainly:

  1. Who should I pay tax to India/US state ?
  2. Am I eligible for tax exemption from US because of US India tax treaty ? ref: http://www.irs.gov/pub/irs-trty/india.pdf Article 15 (Independent Personal Services)
  3. Do I need to fill any formal tax forms ? If yes which one W-8BEN or 8233(asking for tax exemption) ?
  4. What reason should I specify for tax exemption , being an Independent contractor not living in US, or being a student ?

I'll be really thankful if someone can please help me regarding this. Thanks in advance !

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Who should I pay tax to India/US state ?

India.

Am I eligible for tax exemption from US because of US India tax treaty ?

No, because there's nothing to exempt.

Do I need to fill any formal tax forms ? If yes which one W-8BEN or 8233(asking for tax exemption) ?

You need to fill W8-BEN showing that you're not a US person for tax purposes.

What reason should I specify for tax exemption , being an Independent contractor not living in US, or being a student ?

Moot since you're not liable for any taxes in the US based on the information you've provided.

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