What is the 1040-NR form for?

One thing I learned is that Form 1040-NR can also be relevant to foreign students and other temporary visitors, depending on their circumstances.

For example, the IRS instructions have specific filing rules for nonresident students, teachers, and trainees, including people present under certain F, J, M, or Q visas. There are also special provisions for people who may qualify for treaty benefits.

For someone from India, the U.S.-India tax treaty can also become relevant depending on the type of income and the taxpayer's circumstances.

But I wouldn't assume that being an Indian citizen automatically means you should use 1040-NR. Likewise, being physically outside the U.S. doesn't automatically mean you should use it.

The tax residency determination needs to come first.

I was confused about the difference between resident alien and nonresident alien too.

For U.S. tax purposes, a person can be a resident alien even though they aren't a U.S. citizen. Resident aliens generally file the same type of federal return as U.S. citizens, while nonresident aliens generally use Form 1040-NR when they have a filing requirement.

For nonresident aliens, the IRS generally separates income into two broad categories:

Effectively Connected Income (ECI) and FDAP income.

ECI can include income connected with a U.S. trade or business. It is generally taxed using graduated rates after allowable deductions.

FDAP means Fixed, Determinable, Annual, or Periodical income. This can include things such as certain U.S.-source interest, dividends, rents and royalties. FDAP income that isn't effectively connected with a U.S. trade or business is generally subject to a 30% rate or a lower applicable treaty rate.

That's why two people who are both living outside the U.S. can have completely different U.S. filing requirements.

The biggest thing to understand is that Form 1040-NR is specifically for nonresident aliens who have a U.S. tax filing requirement.

It's not simply based on whether you live outside the United States.

The IRS describes Form 1040-NR as the U.S. Nonresident Alien Income Tax Return. Nonresident aliens generally file this form rather than the regular Form 1040 when they meet the applicable filing requirements.

For example, a nonresident alien who is engaged in a U.S. trade or business generally has to file Form 1040-NR. There are also situations where a nonresident alien who isn't engaged in a U.S. trade or business may need to file because of U.S.-source income and insufficient withholding or because they are claiming a refund.

So I wouldn't use "I live in India" as the test.

The first question is really:

What is my U.S. tax residency status, and what type of U.S. income did I receive?

Here are some of the following criteria that need to be filed on Form 1040-NR: 

• Who has a US income source subject to withholding.
• An individual who has a US trade or business during the year. 
• Claiming a refund, withholding, or overpaid tax. 
• If you have any earned wages that are subject to U.S. income tax. 

Could you please explain the process to file a Form 1040-NR?