The India-Canada Tax Treaty in Depth: How a Canada-Resident NRI Is Actually Taxed on Interest, Dividends, Capital Gains, Pensions and Salary

A reader emailed me from Mississauga with a clean, expensive problem. He had moved to Canada in 2021, kept an NRO account and two let-out flats in Pune, and had been doing what he thought was the right thing: paying Indian tax through TDS, and separately declaring nothing of it in Canada because, in his words, "it was already taxed in India." Three years later the Canada Revenue Agency reassessed him for unreported foreign income, and his Indian bank had been deducting roughly 30% on his NRO interest the whole time when the treaty entitled him to 15%. He had managed to overpay India and underdeclare Canada at the same time, which is the worst of both worlds.

The 30-second answer: The India-Canada DTAA (in force since 1997) splits taxing rights but does not make Indian income tax-free for a Canadian resident. India taxes interest at a cap of 15% (Article 11), dividends at 15% for a 10%-plus corporate holding and 25% otherwise (Article 10, though India's domestic 20% rate on NRI dividends often applies first), and most capital gains and Indian property income at full domestic rates. Canada then taxes the same income again on your worldwide income and gives a foreign tax credit (Form T2209) for the Indian tax. India gives the mirror credit for Canadian tax via Form 67 when you are an Indian resident. Leaving Canada triggers a deemed disposition (departure tax) on most capital property. To get treaty rates at source in India you need a Canadian TRC plus Form 10F.

This guide assumes you already know the difference between NRE and NRO accounts and what your Indian residency status means; if not, start with the residency and RNOR guide. What follows is the part that costs money and confuses even diligent people: how the treaty allocates each kind of income between the two countries, how the tie-breaker decides which country you are a resident of when both claim you, how the foreign tax credit actually runs in each direction, and the two moments, arriving in India and leaving Canada, where the numbers get large. I will use worked figures in both Canadian dollars and rupees throughout, at an illustrative rate of CAD 1 = Rs 61.

The treaty does not exempt your income, it only stops double tax

Start with the single misunderstanding that causes most of the damage. NRIs read "Double Taxation Avoidance Agreement" and hear "income taxed in India is exempt in Canada." That is not what the treaty does, and believing it is what got my Mississauga reader reassessed.

Canada taxes its residents on worldwide income. Every dollar of your Indian rent, NRO interest, dividend and capital gain is reportable on your Canadian T1 return, in Canadian dollars, regardless of what India already took. The treaty's job is narrower and more mechanical: it caps India's rate on certain passive income, decides which country gets to tax which stream, and then makes each country give a credit for tax the other one charged on the same income. You do not pay zero. You pay, broadly, the higher of the two countries' effective rates on that income, with the lower-taxing country's bite absorbed as a credit against the higher.

That framing matters because it tells you where to spend effort. The treaty rate cap is only useful if you actually claim it at source in India, and the credit is only useful if you actually report the income in Canada. Skip either step and the machinery does nothing for you. The reader who pays full Indian TDS and declares nothing in Canada has used neither lever and is exposed on both sides.

Interest: the 15% cap that you have to ask for

Interest is the cleanest example of the cap, and the one most NRIs leave on the table. Under Article 11 of the India-Canada treaty, Indian tax on interest paid to a Canadian resident is limited to 15% of the gross amount. The most common Indian interest a Canada-based NRI earns is NRO savings and fixed-deposit interest, which under domestic law suffers TDS at around 30% plus surcharge and cess for non-residents. NRE and FCNR interest is exempt in India for a non-resident anyway, so the cap bites specifically on NRO money.

The catch is that the 15% rate is not automatic. Your bank will deduct the full domestic rate unless you proactively give it a valid Tax Residency Certificate from the CRA plus an e-filed Form 10F before the interest is credited. Form 10F has been mandatory to e-file on the Indian portal since 16 July 2022, and the bank wants both documents on file. Provide them and the bank deducts 15%; skip them and you deduct 30%, then chase the difference through an Indian return months later. The mechanics of getting the TRC and filing Form 10F are covered in DTAA mechanics: TRC and Form 10F; do not treat them as optional paperwork.

Put real numbers on it. Suppose you hold an NRO fixed deposit paying Rs 8,00,000 of interest in a financial year. With no treaty paperwork, the bank deducts roughly 31.2% (30% plus 4% cess), about Rs 2,49,600, and locks it up until you file. With a TRC and Form 10F lodged, it deducts 15%, Rs 1,20,000. That is Rs 1,29,600 that stays in your account instead of becoming a refund you wait for. On the Canadian side, that Rs 8,00,000 of interest (about CAD 13,115 at Rs 61) goes onto your T1 as foreign interest income and is taxed at your Canadian marginal rate. If your marginal rate is, say, 43.4%, the Canadian tax is about CAD 5,692. You then claim a foreign tax credit for the Indian 15%, about CAD 1,967, leaving net Canadian tax of roughly CAD 3,725. Total tax across both countries: the 15% to India plus the topped-up Canadian tax, which equals your full Canadian marginal rate on the income. The treaty did not save you Canadian tax; it stopped India taking 30% on top of it.

Here is the counterfactual that shows why the 15% cap still matters even though Canada taxes you anyway. If you had let India deduct 30% and Canada's tax on the income is 43.4%, your Canadian foreign tax credit is capped at the Canadian tax on that income, not at whatever India charged. The credit cannot exceed the Canadian liability on the stream. If India over-deducts and you never reclaim it in an Indian return, the excess Indian tax above the creditable amount is simply lost. The 15% cap protects you precisely because it keeps India's bite below your Canadian rate, so the whole Indian tax remains creditable.

Dividends: where the treaty rate and the domestic rate collide

Dividends are messier than interest because two numbers compete: the treaty cap and India's domestic withholding rate.

Under Article 10, India may tax dividends paid to a Canadian resident at no more than 15% of the gross if the Canadian recipient is a company that owns at least 10% of the voting power of the Indian payer, and at no more than 25% in all other cases. Read the second number carefully. For an ordinary individual NRI holding a few thousand shares of an Indian company, the treaty ceiling is the 25% rate, not 15%. The 15% slot is for substantial corporate shareholders.

This is where the domestic rate quietly rescues you. Since dividends became taxable in shareholders' hands in 2020, an Indian company paying a dividend to an NRI deducts TDS at a domestic rate of 20% plus surcharge and cess under Section 195. Because you take the lower of the domestic rate and the treaty rate, an individual NRI in Canada effectively faces the 20% domestic rate (plus surcharge and cess), since it is below the 25% treaty ceiling. To even apply 20% rather than have the company default to a higher figure, and to be safe, you still file the TRC and Form 10F with the registrar or company. The treaty here does not cut your rate below domestic law; it caps the worst case at 25% and confirms India's right to tax.

Work it through. You hold shares in an Indian company that declares a dividend of Rs 5,00,000 (about CAD 8,197). The company deducts 20% plus 4% cess, roughly Rs 1,04,000. On your Canadian return the gross Rs 5,00,000 is foreign dividend income, taxed at your marginal rate; note that foreign dividends do not get the Canadian dividend tax credit, which is reserved for dividends from taxable Canadian corporations, so the whole amount is taxed as ordinary income. At a 43.4% marginal rate, Canadian tax is about CAD 3,557. You claim a foreign tax credit for the Indian Rs 1,04,000 (CAD 1,705), leaving net Canadian tax of about CAD 1,852. Total: Indian 20%-plus-cess plus the Canadian top-up to your marginal rate. As with interest, you end up at roughly your Canadian marginal rate overall, with India taking the first slice.

Capital gains: the treaty gives no rate relief, and India taxes first

This is the part where the India-Canada treaty is markedly less generous than, say, the India-UAE treaty, and where NRIs who assume "the DTAA will protect my gains" get a surprise.

Article 13 of the India-Canada treaty allows both states to tax gains on the alienation of property. There is no provision assigning Indian share gains exclusively to the country of residence, and no reduced treaty rate on capital gains. So a Canadian-resident NRI selling Indian shares, mutual funds or property pays the full Indian domestic rate on the gain, then reports the same gain in Canada and claims a foreign tax credit. Contrast this with a Dubai resident, whose treaty can take Indian tax on listed-share gains to zero. The Canadian has no such escape; the treaty here is neutral, not protective.

The Indian domestic rates are the ones from the 23 July 2024 overhaul, which I cover in full in the capital gains guide for NRIs. In short: listed equity and equity mutual funds are taxed at 12.5% long-term above Rs 1.25 lakh and 20% short-term; property held over 24 months is 12.5% without indexation, with the NRI denied the resident's 20%-with-indexation option; and the surcharge on these gains is capped at 15%. India taxes the gain through TDS at source, often over-withheld on property, which is why a Section 197 lower-deduction certificate matters on any large sale.

The interaction with Canada is where it gets subtle, because Canada and India compute the gain differently. Canada taxes 50% of the capital gain (the inclusion rate) at your marginal rate, against your adjusted cost base in Canadian dollars on the date you acquired the asset, or its value on the date you became a Canadian resident if you owned it before arriving. India taxes the gain against your Indian rupee cost with no currency adjustment for the Canadian dollar. The two gains will rarely be the same number, and the rupee's depreciation against the dollar can make the Indian gain look larger in rupee terms while the Canadian gain in dollar terms is smaller. The foreign tax credit in Canada is limited to the Canadian tax on the Canadian-measured gain, so an over-large Indian gain can leave Indian tax that is not fully creditable.

The gap is easiest to see on a single property sale. Take an NRI who bought a Pune flat in 2015 for Rs 60,00,000 and sells it in 2026 for Rs 1,60,00,000. India taxes the long-term gain of Rs 1,00,00,000 at 12.5% without indexation, Rs 12,50,000 plus surcharge and cess, call it Rs 13,00,000 all-in (about CAD 21,311). Now Canada. Suppose this NRI became a Canadian resident in 2021, when the flat was worth Rs 1,20,00,000, which at the 2021 rate of, say, CAD 1 = Rs 59 was a cost base of about CAD 2,03,390. The 2026 sale of Rs 1,60,00,000 at Rs 61 is about CAD 2,62,295. The Canadian-measured gain is roughly CAD 58,905, of which 50% (CAD 29,452) is taxable; at 43.4% that is Canadian tax of about CAD 12,782. The Indian tax of CAD 21,311 exceeds the Canadian tax of CAD 12,782 on this gain, so the foreign tax credit is limited to CAD 12,782, and roughly CAD 8,529 of Indian tax is not creditable in Canada. That excess is not refunded; it is the cost of India taxing a rupee gain that looks bigger than the dollar gain Canada sees. Had this person sold before leaving Canada, or had India offered indexation, the numbers would shift, but as a Canadian-resident NRI selling Indian property, this leakage is real and worth modelling before you sell.

Pensions: who taxes a CPP, an Indian pension, or an RRSP withdrawal

Pensions are governed by Article 18, and the rule is the opposite of what most people guess. Under the India-Canada treaty, pensions are generally taxable in the state in which they arise, that is, the country whose resident pays the pension. This is the source principle, not the residence principle that most other articles use.

So an Indian pension paid to a Canadian resident, an EPF or NPS payout, a former Indian employer's pension, is taxable in India, and Canada gives the credit. A Canadian pension paid to a person, including CPP and OAS, is taxable in Canada, with India giving the credit if you are by then an Indian resident. There is a narrow but real carve-out worth knowing: Indian military service pensions and military disability pensions received by a Canadian resident are exempt from Canadian tax under Article 18, a point the CRA has confirmed in interpretation. If you are a veteran drawing an Indian armed-forces pension in Canada, do not let it be taxed twice.

The RRSP and RRIF question is the one Canada-based NRIs ask most, and the answer turns on whether you are still a Canadian resident or have moved back to India. While you are a Canadian resident, RRSP and RRIF withdrawals are ordinary Canadian income, taxed in Canada, no treaty issue. The interesting case is the NRI who returns to India and then draws down an RRSP or RRIF as a non-resident of Canada. Canada applies non-resident withholding tax on the withdrawal: the default is 25%, but a withdrawal that qualifies as a periodic pension payment from a RRIF can attract a reduced treaty rate of 15% rather than 25%. A lump-sum RRSP collapse does not get the periodic rate; it suffers the full 25%. This is the single most important RRSP planning point for someone returning to India: converting an RRSP to a RRIF and taking measured periodic withdrawals can halve the Canadian withholding compared with a lump-sum collapse. I go deeper on sequencing this against Indian residency in retirement planning across two countries.

Once you are an Indian resident drawing that RRIF, India taxes the withdrawal too, as foreign pension income, and you claim a Form 67 credit in India for the Canadian 15% or 25% withheld. The RNOR window matters enormously here, because during your RNOR years your foreign income, including RRSP/RRIF draws, is generally not taxable in India at all, so you face only the Canadian withholding. Timing large withdrawals into the RNOR period is one of the highest-value moves available to a returning NRI; the RNOR rules guide explains the window.

Salary: the 183-day rule and where you actually worked

Salary sits under Article 15 (dependent personal services), and the principle is that employment income is taxable where the work is physically performed. For a Canada-resident NRI, salary earned for work done in Canada is taxable in Canada, full stop, and India has no claim on it.

The friction arises with cross-border work: an Indian employer's salary for days spent working in India, or a Canadian employer sending you to India on assignment. Article 15 gives the source country (India, for days worked in India) the right to tax that portion, unless three conditions are all met: you are present in India for 183 days or fewer in the relevant fiscal year, the remuneration is paid by or for an employer who is not a resident of India, and the cost is not borne by a permanent establishment of the employer in India. Meet all three and India cannot tax the Indian-workday salary; fail any one and India taxes the portion earned on Indian soil. The 183-day count is the trigger most short-assignment travellers watch, but the employer-residence and permanent-establishment conditions catch people seconded to an Indian group entity even on short trips.

For the typical reader, settled in Canada, working for a Canadian employer, occasionally travelling to India, this usually resolves cleanly: Canada taxes the salary, and a handful of Indian workdays under the 183-day threshold paid by the Canadian employer stay out of Indian tax. But if you split the year materially between an Indian and a Canadian role, apportion the salary by workdays and expect India to tax its share.

The tie-breaker: when both countries call you a resident

Everything above assumes you are clearly a resident of one country. The hard cases are the years when both countries claim you, typically the year you move, when you can be a tax resident of India under the day-count rules and simultaneously a resident of Canada under the residential-ties test. Both countries tax worldwide income of their residents, so without a rule to break the tie you would be taxed on everything, everywhere, twice, with credits that do not fully line up.

Article 4 supplies the tie-breaker, applied as a strict cascade. You stop at the first test that resolves it. First, you are resident where you have a permanent home available to you. If you have a permanent home in both (you kept the Mumbai flat and rented a Toronto condo), you go to the second test: your centre of vital interests, the country with which your personal and economic relations are closer, family, job, bank accounts, social life. If that cannot be determined, the third test is habitual abode, where you actually spend your time. If still tied, the fourth is nationality. And if you are a national of both or neither, the competent authorities decide by mutual agreement. The deep mechanics, with the evidence each test demands, are in the tie-breaker and dual-residency guide; the point here is that the tie-breaker assigns you to one country as a treaty resident, and that country gets to tax your worldwide income while the other is restricted to source-based taxation under the relevant articles.

This is not academic. Get the tie-breaker right in your move year and you avoid being taxed as a full resident by both. The most common error is assuming the move date alone settles it; it does not, because India's residency is determined by days in the financial year and Canada's by severance of residential ties, and those two clocks do not stop on the same day.

Foreign tax credit, both directions: Form 67 and Form T2209

The credit is the engine that makes the whole treaty work, and it runs in both directions depending on which country you are a resident of in a given year.

When you are a Canadian resident with Indian-source income, India taxes first at its capped or domestic rate, and Canada gives you the credit on Form T2209 (federal foreign tax credit, flowing to line 40500), plus a provincial equivalent. The credit is computed country by country and is the lower of the foreign tax paid and the Canadian tax otherwise payable on that foreign income. You convert the Indian income and the Indian tax to Canadian dollars at the Bank of Canada rate, usually the annual average for consistency. Your Indian Form 26AS is the evidence of TDS deducted, and you should keep it with your Canadian file. The T2209 deadline is your normal Canadian filing deadline, 30 April.

When you have returned to India and become an Indian resident with Canadian-source income (CPP, a RRIF draw, Canadian employment), Canada taxes at source and India gives the credit on Form 67 under Rule 128. Form 67 must be filed on or before the end of the relevant assessment year, and you must have filed your Indian return within the time allowed under Section 139(1) or 139(4). For income offered to tax in AY 2026-27, the practical drop-dead date for Form 67 is 31 December 2026. Courts have repeatedly held that the Form 67 deadline is procedural, and credit has been allowed where the form was on file by the time the return was processed, but you should not rely on litigation; file it on time. India's credit is also limited to the lower of the foreign tax and the Indian tax on that income, computed under Rule 128, and you need the foreign tax-payment evidence. The full filing walk-through is in the Form 67 guide, and the broader relief framework in DTAA relief for NRIs.

The trap that connects the two: in your transition year, you may have Indian income taxed by India and Canadian income taxed by Canada, and you need to claim the right credit in the right country for each stream, governed by where the tie-breaker put you. People routinely claim a credit in the wrong country, or double-claim, in the move year. Map each income stream to its source and its treaty article before you file either return.

Leaving Canada: the deemed disposition that catches you on the way out

The largest single tax event for an NRI moving from Canada to India is not in the India-Canada treaty at all; it is in Canadian domestic law, and the treaty does not shield you from it. When you cease to be a Canadian tax resident, Canada treats you as having sold most of your capital property at fair market value on your departure date and immediately reacquired it at that value. This deemed disposition, informally the departure tax, crystallises every unrealised capital gain so Canada can tax the appreciation that accrued while you were resident, before it loses jurisdiction.

You report it on Form T1243 (deemed disposition of property by an emigrant), and if the total fair market value of your property exceeds CAD 25,000 you also file Form T1161 (list of properties). Half of the net deemed gain (the 50% inclusion rate) is added to your final-year Canadian income and taxed at your marginal rate. Some property is excluded from the deemed disposition, notably Canadian real property, Canadian business property, and registered plans like RRSPs and RRIFs, which Canada continues to tax on actual withdrawal. If you were a Canadian resident for 60 months or fewer, the deemed disposition applies only to property you acquired after becoming resident, plus a couple of categories, which can spare recent arrivals a large bill.

There are two reliefs worth knowing. You can elect to defer the departure tax until you actually dispose of the asset (or return to Canada), using Form T1244, which avoids paying tax on a gain you have not realised in cash; the CRA may require security for larger deferred amounts. And the deemed disposition gives you a stepped-up cost base for Canadian purposes, so if you later sell the asset as a non-resident, you are not taxed again on the gain Canada already deemed.

Here is why this matters for an NRI specifically, and where it interacts with India. Suppose you hold a Canadian non-registered portfolio that cost CAD 1,50,000 and is worth CAD 4,00,000 on your departure date. The deemed gain is CAD 2,50,000; 50% (CAD 1,25,000) is taxable; at a 43.4% marginal rate the departure tax is about CAD 54,250 (around Rs 33,09,000 at Rs 61). That is a real bill in your final Canadian year, on assets you still hold. The planning lever is sequencing: realising losses before departure to offset the deemed gain, choosing your departure date to fall in a lower-income Canadian year, and using the T1244 deferral so you pay only when you sell. And once you are in India, the asset carries its stepped-up base for Canada but its original base for India, so a later sale produces an Indian gain measured from the old cost. If you sell during your RNOR years in India, that foreign gain is generally outside Indian tax, which is the cleanest outcome. Coordinating the Canadian departure date with the start of your Indian RNOR window is the move that saves the most here.

A quick map of who taxes what

Income type	Treaty article	India's right (Canada-resident NRI)	Practical Indian rate	Where the credit is claimed
Interest (NRO)	Article 11	Capped at 15%	15% with TRC + Form 10F, else ~30%	Canada (T2209)
Dividends (individual)	Article 10	Capped at 25% treaty; 20% domestic applies	~20% plus surcharge/cess	Canada (T2209)
Capital gains (shares, property)	Article 13	Both states may tax; no rate relief	Full domestic (12.5% / 20%)	Canada (T2209), credit limited
Indian pension / EPF	Article 18	Taxable in India (source)	Domestic	Canada (T2209)
Canadian pension / CPP / RRIF	Article 18	Taxable in Canada (source)	15% or 25% non-resident WHT	India (Form 67), if Indian resident
Salary for Indian workdays	Article 15	India taxes unless 183-day test met	Slab	Canada (T2209)

Edge cases

NRE and FCNR interest stays exempt, so the 15% cap is irrelevant there. The Article 11 cap matters only for NRO interest. Interest on NRE and FCNR deposits is exempt from Indian tax for a non-resident under domestic law, so there is nothing for the treaty to cap. But Canada still taxes that NRE/FCNR interest on your worldwide income, with no Indian tax to credit, so it is taxed in full in Canada. NRE interest is tax-free in India, not tax-free overall, for a Canadian resident.

The mutual fund PFIC overlay can dwarf the treaty. Indian mutual funds held by a US person are PFICs; Canada does not have a PFIC regime in the punitive US sense, but Canadian residents holding Indian mutual funds face Canada's offshore investment fund rules and foreign-property reporting on Form T1135 if the cost of specified foreign property exceeds CAD 100,000. The treaty does nothing about T1135; missing it carries its own penalties separate from any tax. See NRI mutual fund eligibility considerations before assuming Indian funds are simple for a Canadian.

Form 67 lateness is forgiven in practice but not in statute. The weight of Indian tribunal decisions treats the Form 67 deadline as directory rather than mandatory, allowing the credit if the form is filed before the return is processed. That is helpful if you slip, but it is litigation, not entitlement. File by 31 December of the assessment year and you never test the point.

The departure-tax deferral is not automatic. If you do not file Form T1244 by your filing deadline, the departure tax is simply due, even on assets you have not sold. The deferral election is the difference between a paper gain and a cash bill in your final Canadian year, and it is easy to miss in the chaos of relocating.

The closing read

The honest read is that the India-Canada treaty is a credit treaty, not an exemption treaty, and it rewards the diligent and punishes the casual. It will not make your Indian income disappear from your Canadian return, and it gives no special rate relief on capital gains the way the Gulf treaties do. What it does, if you work it, is fix India's rate on passive income at a sensible cap and stop you paying full freight twice.

So for the typical Canada-resident NRI, three moves carry most of the value. First, get a CRA tax residency certificate and e-file Form 10F, then give both to your Indian bank and any company paying you dividends, so India deducts 15% on interest and 20% on dividends rather than 30%; the paperwork pays for itself the first year. Second, report every rupee of Indian income on your Canadian T1 in Canadian dollars and claim the Form T2209 credit, because the CRA matches foreign-income data and the credit only works if you declare the income. Third, if a move back to India is on the horizon, plan the exit deliberately: model the deemed-disposition departure tax, consider the T1244 deferral, convert RRSPs to a RRIF for the 15% periodic withholding rather than a 25% lump-sum hit, and time large foreign-asset sales into your Indian RNOR window where they escape Indian tax entirely. The one place to stop reading blogs, including this one, and pay a cross-border specialist is the move year itself, where the tie-breaker, the departure tax, and the RNOR clock all collide and a single wrong assumption is worth lakhs.

Related guides

• DTAA relief for NRIs
• DTAA mechanics: TRC, Form 10F and Section 90
• Foreign tax credit and Form 67
• The DTAA tie-breaker and dual residency
• NRI residency and RNOR rules
• Capital gains tax for NRIs on shares and mutual funds
• The India-US tax treaty in depth
• Retirement planning across two countries
• All Taxation guides
• All Banking guides
• All Investments guides

This guide is educational and general in nature. It is not individual tax advice. Cross-border outcomes depend on your exact residency status, the treaty tie-breaker, your departure date from Canada, and the precise mix of your income, and several of the rates and rules here can change, so confirm your specific position with a qualified cross-border tax adviser before you act, particularly in any year you move between the two countries.