Canada and India have a Double Taxation Avoidance Agreement (DTAA), also known as a tax treaty. This treaty was signed in 1989 and came into force on May 6, 1997. It has been revised several times since then, most recently in 2016. The purpose of the DTAA is to eliminate double taxation of income and capital gains between the two countries.
Scope of the Treaty
The DTAA applies to individuals and businesses that are residents of either Canada or India. A resident of a country is defined as a person who is liable to tax in that country by reason of their domicile, residence, place of head office, or any other criterion of similar nature.
The DTAA covers a wide range of income types, including:
- Business profits
- Capital gains
- Salaries, pensions, and other remuneration
Taxation of Specific Types of Income
The DTAA contains specific rules for the taxation of different types of income. For example, business profits are taxable in the country where the permanent establishment is located. Dividends are generally taxable in the country of residence of the recipient, but the source country can levy a withholding tax at a reduced rate or no rate at all. Interest is generally taxable in the country of residence of the recipient, but there are some exceptions. Royalties are generally taxable in the country where the intellectual property is used or exploited. Capital gains are generally taxable in the country of residence of the seller, but there are some exceptions.
Elimination of Double Taxation
The DTAA eliminates double taxation in a number of ways. First, it allows residents of one country to claim a credit for taxes paid in the other country. Second, it reduces or eliminates withholding taxes on certain types of income. Third, it provides for arbitration to resolve any disputes between the two countries.
Benefits of the Treaty
The DTAA provides a number of benefits to individuals and businesses that trade and invest between Canada and India. It reduces the cost of compliance and makes it easier to do business between the two countries. It also promotes investment and economic growth.
The Canada-India DTAA is a comprehensive and effective treaty that helps to eliminate double taxation and promote trade and investment between the two countries. It is an important tool for businesses and individuals that operate in both countries.