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Double Tax Avoidance Agreement (DTAA) Between India and Canada

By Sujaini Biswas

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Updated on: May 16th, 2023

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10 min read

Being a Non-Resident Indian often raises the question, "Do I have to pay taxes on my income in both India and a foreign country?” Paying double taxes on an income can become an issue when it comes to saving money while filing ITR. To save NRIs and Indian residents from facing such challenges, the Indian Government signed Double Tax Avoidance Agreement with 85 different countries.

DTAA between India and Canada allows taxpayers to avoid paying double taxes on their income in both countries. It is an important development for bilateral investment and trade between the two nations. In this article, we will discuss several aspects of the arrangement to clearly understand how the treaty works and how it is favourable for both countries.

DTAA Between India and Canada

Canada and India share a long history of friendly diplomatic relations. Over the past years, both nations have engaged in investment and trade activities, helping in economic growth of both Contracting States. On 6th of May 1997, Double Tax Avoidance Agreement was signed between India and Canada. This treaty is applicable to individuals who are residents of one or either of the Contracting States. 

According to Indian Canada DTAA, if an Indian resident has taxable capital gains in Canada, India will permit a deduction from the resident's capital gains tax equal to the amount paid in Canada. This agreement covers different types of income, such as business profits, royalties, capital gains, dividends and others. The taxes on such incomes get imposed as per specific guidelines of the treaty.

Significance of India Canada DTAA for Both Countries

There are multiple benefits that DTAA between India and Canada offers to individuals and businesses of both nations. The agreement ensures that no double tax is levied on the same income. There are legal certainties related to DTAA since specific rules are applicable for taxes on foreign income. 

In some cases, the provisions of DTAA offer concessional tax rates to both nations. The treaty guarantees that benefits are applicable to legitimate residents of India and Canada by applying anti-abusiveness provisions.

Moreover, DTAA is also significant in providing a predictable and stable tax regime to two countries. It encourages businesses to expand their activities. By providing a favourable investment environment and better opportunity to India and Canada, the Convention helps attract foreign investment and promotes economic growth.

Taxes Covered Under DTAA

Read the following points to understand the different types of taxes covered under India Canada DTAA.

1. This Agreement applies to income taxes and capital imposed on residents of both Contracting States.

2. The Convention applies to substantially similar or identical taxes imposed in place of the existing taxes or the Contracting State after signing the treaty.

3. The particular income where the treaty is applicable is:

4. Canada:

  • Taxes under the Income Tax Act of Canada (also called Canadian Tax)

5. India: 

  • Wealth Tax as per the Wealth Tax Act (also called Indian Tax)
  • Income tax involving surcharges as per Income Tax Act

6. All taxes levied on total income, total capital gains, or parts of income or capital, including taxes on gains from the alienation of movable or immovable properties is considered income and capital taxes.

7. The Contracting States, at the end of each year, will notify one another about any substantial changes made in respective tax laws, subject to DTAA.

India Canada DTAA Tax Rates

The withholding tax rates applicable on different incomes as per DTAA are as follows.

CountryTax rate on DividendTax rate on RoyaltyTax rate on Interest income
Canada

15%, if the beneficiary firm has at least 10% of voting power in the company paying the dividends;

In other cases, 25%

10%-20%

15%

 

 

Taxation on Capital Gains Under DTAA

Capital gains are taxed as follows under DTAA between India and Canada:

  1. Gains after the alienation of aircraft or ships operated in international areas by a business of a Contracting State and any movable properties concerning operations of such aircraft or ships will be taxable in that State only.
  2. Capital gains after alienating properties other than the above-mentioned properties might be taxed in both States.

Special Provisions Under India Canada DTAA

Under Chapter VI of India Canada DTAA, special provisions are mentioned. This covers several articles that explain the taxation system between the two countries.

  • Non-Discrimination

Article 24 describes a tax agreement between two contracting jurisdictions. It specifies that nationals of one State cannot face higher taxes than nationals of the other State. Canada may levy additional taxes on the earnings of an Indian firm having a permanent establishment in Canada. But the tax rate cannot exceed a specified threshold.

  • Exchange of Information

Under Article 26, Contracting States must exchange information necessary for carrying out the Agreement and domestic laws of contracting states. The information obtained must be kept confidential and only provided to those who need to know. The treaty does not impose administrative measures contradicting the laws of the Contracting States or provide information that is not readily available.

  • Mutual Agreement Procedure

As per Article 25, if a resident of a Contracting State feels that they have been taxed in a way contrary to the Convention, they can present their case to the competent authority within two years of the initial action. If the objection is justified, the competent authorities of both Contracting States need to resolve it. 

  • Diplomatic Agents and Consular Officers

Article 27 of DTAA states that nothing about this agreement should affect the fiscal privilege of consular officers or diplomatic agents mentioned in general rules of international law or provisions of special agreements.

Final Word

The DTAA between India and Canada is a beneficial pact that promotes investment and cross-border commerce by avoiding double taxation. If you wish to claim DTAA tax credits on your Canadian income, you must fill out the essential data under the appropriate heading during ITR filing. Understanding the norms and regulations of DTAA between India and Canada would enable you to avoid paying double taxes on various incomes.

Related Articles:

1. DTAA Between India and China

2. DTAA Between India And Hong Kong

3. DTAA Between India and Mauritius

4. DTAA Between India and Singapore
5. DTAA Between India and Ireland

About the Author

A manager by day and a sloth by night. I enjoy writing on topics like personal finance and investments. With 10 years of experience in fintech, creating content that resonates with readers is my forte. Read more

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Quick Summary

India and Canada have a Double Tax Avoidance Agreement which helps in avoiding paying double taxes on incomes in both countries. The agreement covers various types of income and provides legal certainties, concessional tax rates, and stable tax regime. It helps in attracting foreign investment and promoting economic growth. The agreement also specifies different tax rates on dividends, royalties, interest income, and capital gains. Special provisions under India-Canada DTAA include non-discrimination, exchange of information, and mutual agreement procedure.

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