I am travelling to USA from India and I have two layovers in Germany (Frankfurt and Dusseldorf). Do I need a transit visa or a Schengen visa?
Will I be exempted from Schengen visa, since I hold a valid f1 visa?
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You will need a full Schengen visa
The reason for this is that the flight between Frankfurt and Dusseldor is a normal domestic German flight. As such, you will have to enter the Schengen area at the first airport, take the domestic flight, then exit Schengen to board your second.
If you had an international-internationl connection, eg India to X, X to the USA, then holding a US visa can often allow you to transit without needing a special transit visa. (Depends on the country, airport and if it's two tickets or one).
However, if you have to take an intra-Schengen flight as one of the legs, then that means you have to enter the Schengen area, which means you need a regular short stay Schengen visa. Assuming you're doing the same things on a return flight, you'd need a multiple entry visa as you'd have to enter and exit Schengen on each direction. If it's just a one-way flight from India to the USA, then a single entry Schengen visa is fine