For NRIs in Canada with income from India, the India–Canada DTAA (effective May 6, 1997) prevents double taxation and clarifies cross-border tax rules. It allocates taxing rights, helps avoid double tax through exemptions or Foreign Tax Credit (FTC), lowers withholding taxes, and fosters economic cooperation between the two countries.

Determining Tax Residency

Your tax residency is key to applying the India Canada DTAA. Canada taxes its residents on worldwide income, while India generally taxes NRIs on Indian-sourced income.  

• Indian Residency: Based on physical presence (e.g., 182+ days in a financial year, or specific conditions for shorter stays if Indian income is significant).  

• Canadian Residency: Determined by significant residential ties (e.g., home, spouse, dependants in Canada). 

Impact of the India Canada DTAA on Key Income Types

The India Canada DTAA significantly shapes how various types of your Indian income are taxed.

Capital Gains

Article 13(2) of the India Canada DTAA generally allows both India and Canada to tax capital gains from assets like shares and mutual funds.  

Indian Taxation: India taxes STCG and LTCG from equities and mutual funds per its domestic laws (e.g., STCG on listed equity is often 15%/20%; LTCG over a threshold is at 10%/12.5%). Gains from debt mutual funds (from April 1, 2023) are usually taxed at your slab rate in India. 

TDS Applicability:
Yes, TDS is applicable on capital gains earned by NRIs from mutual funds and shares in India. The rates are:

• STCG on listed equity/MFs: 15% TDS

• LTCG on listed equity/MFs (above ₹1 lakh): 10% TDS

• Debt mutual funds: TDS at 30% (since gains are taxed as per slab rate and no indexation is allowed)

Note: The actual tax liability could differ based on treaty benefits, but TDS is deducted upfront by the fund house or intermediary. 

DTAA Impact & Canadian Side: Canada also taxes these gains because Canadian tax residents are taxed on worldwide income. However, only 50% of the realized capital gains are taxable in Canada under its domestic law.
This means if you have ₹1 lakh capital gain from Indian mutual funds:

• India taxes the entire gain (as per rules above)

• Canada includes only ₹50,000 (50%) in your taxable income

To avoid double taxation, Canada offers a Foreign Tax Credit (FTC) under Article 23 of the DTAA for the taxes paid in India. The FTC applies to the Indian tax paid on the capital gains portion taxed by Canada.

Dividend Income

Article 10 of the India Canada DTAA covers dividend taxation.  

• Indian Taxation: Dividends from Indian companies are taxed at 20% (plus surcharge/cess) for NRIs in India.  

• DTAA Impact & Canadian Side: The India Canada DTAA caps Indian tax on dividends to individual Canadian NRIs at 25%. However, India's lower domestic rate of 20% applies. Canada also taxes this income and provides an FTC. This offers predictability for DTAA Canada India personal tax.  

Interest Income

Article 11 of the India Canada DTAA applies to interest income.  

• NRE Accounts: Interest is tax-exempt in India (but taxable in Canada).  

• NRO Accounts: Interest is taxable in India. The India Canada DTAA caps India's tax rate at 15% if you provide a Canadian TRC and Form 10F to the Indian bank. Without these, a higher domestic TDS (Tax Deducted at Source) rate (typically 30% plus surcharge/cess) applies. This is a clear benefit of the India Canada tax treaty.  

Rental Income from Indian Property

Article 6 of the India Canada DTAA gives India the primary right to tax rental income from property in India.  

• Indian Taxation: Rental income is taxed in India after deductions (municipal taxes, 30% standard deduction). TDS at 30% (plus surcharge/cess, effectively ~31.2%) is usually deducted by the tenant.  

• DTAA Impact & Canadian Side: The India Canada DTAA doesn't specify a reduced Indian tax rate for rental income. You pay Indian tax as per its laws and then claim an FTC in Canada. This is vital for Tax for NRIs in Canada with Indian property.  

Taxation Overview for NRIs by Income Type

Leveraging Canadian Tax Residency and the India-Canada DTAA

Being a tax resident of Canada is crucial for accessing benefits under the India Canada DTAA.

• Canadian Taxation: Canadian residents are taxed on their worldwide income, including Indian income.  

• Foreign Tax Credit (FTC): Under Article 23(2)(a) of the India Canada DTAA, Canada provides an FTC for taxes paid in India on Indian-sourced income. This is the primary mechanism to avoid double taxation. Proper documentation of Indian taxes paid is essential.  

• Importance of Canadian Residency: Clear Canadian tax residency ensures eligibility for DTAA benefits like FTC and potentially lower withholding rates in India. Disputed residency can lead to denial of India Canada DTAA benefits or unforeseen tax liabilities.

Essential Compliance: Getting Your TRC and Filing Form 10F

To make sure you can claim benefits like lower TDS rates in India under the India-Canada DTAA, there are a couple of important compliance steps:

• Tax Residency Certificate (TRC): You'll need to get a TRC from the Canada Revenue Agency (CRA). This certificate officially proves your Canadian tax residency for a specific period.

• Form 10F: This is a self-declaration that you must e-file on the Indian tax portal. It's often required in addition to your TRC, especially if your TRC doesn't contain all the specific details Indian law requires. E-filing Form 10F has been mandatory since July 16, 2022.  

• PAN (Permanent Account Number): An Indian PAN is generally essential for these compliance procedures and for most financial dealings in India.  

Frequently Asked Questions (FAQs)

1. How does the India Canada DTAA affect the tax on my NRO account interest as a Canadian NRI?
   Article 11 of the India Canada DTAA caps Indian tax on NRO account interest at 15% for Canadian NRIs who provide a TRC and Form 10F to their Indian bank; otherwise, higher domestic TDS applies. 
   
   

2. Are capital gains from my Indian mutual funds tax-free in India if I'm a Canadian NRI, because of the India Canada DTAA?
   Generally no. Article 13(2) of the India Canada DTAA allows both countries to tax these gains.
    

3. What are the must-have documents for a Canadian NRI to claim benefits under the India Canada DTAA in India?
   Canadian NRIs typically need a TRC from CRA, must e-file Form 10F on India's tax portal, and usually require an Indian PAN. These are vital for Tax for NRIs in Canada and DTAA Canada India personal tax. 
   
   

4. If I pay tax in India on my Indian rental income, do I also pay tax on it in Canada?
   Yes, Canadian residents are taxed on worldwide income, including Indian rental income. However, Article 23 of the India Canada DTAA allows claiming an FTC in Canada for Indian taxes paid, reducing or eliminating double taxation. 
   
   

5. What happens if I am considered a tax resident in both India and Canda at the same time?

   If both India and Canada consider you a resident, Article 4 uses tie-breaker rules- permanent home, centre of vital interests, habitual abode, then nationality to determine your DTAA residency.