Non-Resident Indians (NRIs) living in Canada who invest in India must adhere to the tax laws of both countries. Canada follows a global taxation system, meaning tax residents must report worldwide income, including earnings from India. The Double Taxation Avoidance Agreement (DTAA) between India and Canada helps prevent double taxation.
Key Taxation Rules for NRIs in Canada
1. India-Sourced Income Taxation
- Income earned in India is subject to Indian tax laws.
- This income must also be declared in Canada if the individual is a tax resident.
- DTAA provisions allow tax credits for Indian taxes paid.
2. Tax Residency in Canada
- Tax residency is determined by significant residential ties (e.g., home, family, business, etc.).
- 183-day rule: If an individual stays in Canada for 183 days or more in a tax year, they are considered a tax resident.
- Tax residents are taxed on worldwide income, while non-residents are taxed only on Canadian income.
3. Canada Income Tax Brackets (2024-25)
- Up to CAD 53,359 – 15%
- CAD 53,359 - CAD 106,717 – 20.5%
- CAD 106,717 - CAD 165,430 – 26%
- CAD 165,430 - CAD 235,675 – 29%
- Above CAD 235,675 – 33%
DTAA Between India and Canada
The India-Canada DTAA provides relief through:
Tax Credit Method
Canadian residents can claim credit for taxes paid in India.
Exemption Method
Certain incomes may be exempt from tax in one country.
Investment-Specific Taxation
1. Mutual Funds
- Equity Mutual Funds: LTCG (>1 year) taxed at 10% in India, also taxable in Canada.
- Debt Mutual Funds: LTCG (>3 years) taxed at 20% in India.
- Capital gains must be reported in Canada.
2. Fixed Deposits
- NRE FDs: Interest is tax-free in India but taxable in Canada.
- NRO FDs: Interest is taxable in both countries, eligible for DTAA credit.
3. Real Estate
- Sale of Property: 20% LTCG tax in India.
- Rental Income: 30% TDS deducted in India, taxable in Canada as well.
Common Tax Compliance Mistakes by NRIs in Canada
- Not Reporting Indian Income – Leads to penalties under Canadian tax laws.
- Ignoring DTAA Benefits – Can result in double taxation.
- Misreporting Remittances – Incorrectrting can cause compliance issues.
Conclusion
Taxation for NRIs in Canada is complex, requiring proper compliance with tax laws in both India and Canada. Understanding DTAA provisions and seeking professional tax advice can optimize tax planning and investment decisions.
Get in Touch Today to explore the best plans tailored to your needs!
Our Partners
