ARTICLE 21

Payments Received by Students and Apprentices

Paragraph 1 deals with a student or business apprentice who is or was a resident of one of the Contracting States immediately before visiting the other Contracting State and who is present in that other State principally for the purpose of his education or training. In this case, the student or business apprentice shall be exempt from tax in that other State on payments which arise outside that other State for purposes of his maintenance, education or training.

By "payments which arise outside that other State", we mean payments other than those borne by a permanent establishment in the United States or paid by a U.S. citizen or resident (including, for this purpose, the Government of the United States or any of its political subdivisions or local authorities, or any agency or instrumentality of such Government). Paragraph 1 does not cover a deductible payment by a U.S. company to an Indian business apprentice who is present in the United States principally for the purpose of training.

Paragraph 2 provides that, in regard to grants, scholarships and remuneration from employment not covered by paragraph 1, a student or business apprentice described in paragraph 1 shall also be entitled during such education or training to the sane exemptions, reliefs or reductions in respect of taxes available to residents of the State which he is visiting. Thus, the Indian business apprentice in the example above is entitled to the same exemptions, reliefs or reductions from U.S. tax that are available to U.S. residents with regard to a similar payment. Paragraph 2 is not found in the comparable provision of the U.S. Model Treaty. It conforms to

paragraph 2 of Article 20 (Payments received by students and apprentices) of the U.N. Model.

If a student who is resident in a Contracting State remains in the other State for a period of time exceeding the period during which he is present principally for the purpose of his education or training, the Contracting State which he is visiting may tax the individual under its national law, but only for the period after the purpose of the student's visit has changed.

Paragraph 3 provides that the benefits of this article shall extend only for such period of time as may be reasonable or customarily required to complete the education or training undertaken. This paragraph is not found in either the U.S. or the U.N. model. It was included in the Convention to ensure that the benefits of Article 21 are received only where the educational or training program is not unusually prolonged. In such a case, the principal purpose of the student's or apprentice's presence in a Contracting State would not be his education or training.

Paragraph 4 provides that, for purposes of this Article, an individual shall be deemed to be a resident of a Contracting State if he is resident in that Contracting State in the taxable year in which he visits the other Contracting State or in the immediately preceding taxable year. Thus, a student visiting the United States from India is considered to be a resident of India if he is so resident in the year he arrives in the United States or in the year immediately preceding his arrival in the United States.

By virtue of the exception to the saving clause in paragraph 4)(b) of Article 1 (General Scope) of the Convention, the saving clause does not apply with respect to a person entitled to U.S. benefits under the provisions of this Article if that person is neither a U.S. citizen nor has immigrant status in the United States. Thus, for example, an Indian resident who visits the United States as a student and becomes a U.S. resident according to the Code, other than by virtue of acquiring a green card, would continue to be exempt from U.S. tax in accordance with this Article so long as he is not a U.S. citizen and does not acquire immigrant status in the United States. The saving clause does apply to U.S. citizens and immigrants.