Canada NRI Tax Guide — India-Canada DTAA, T1135, RRSP & Cross-Border Filing (2026)

By CA Mayank Wadhera (CA|CS|CMA|IBBI Registered Valuer) MKW Advisors | Legal Suvidha | DigiComply

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Canada is home to over 1.8 million people of Indian origin, making it one of the largest NRI corridors in the world. Whether you migrated for education, employment, or permanent residency, the tax obligations you carry in both India and Canada are substantial, interconnected, and frequently misunderstood.

The India-Canada Double Taxation Avoidance Agreement (DTAA), combined with Canada Revenue Agency (CRA) reporting requirements such as the T1135 Foreign Income Verification Statement, creates a complex web of compliance that most NRIs either ignore or handle incorrectly. The consequences range from penalties running into thousands of dollars to full-blown reassessments by both tax authorities.

This guide is your definitive resource for navigating every dimension of Canada-India cross-border taxation in 2026 -- from DTAA withholding rates to RRSP treatment, from property sales to pension taxation, and from Form 67 in India to Section 116 clearance certificates in Canada.

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Understanding the India-Canada DTAA: Treaty Rates That Govern Your Money

The India-Canada DTAA, formally the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion, was signed on January 11, 1996, and has been in force since 1997. It allocates taxing rights between the two countries and sets maximum withholding rates on cross-border income flows.

DTAA Withholding Tax Rates at a Glance

Key principle: The DTAA does not exempt you from tax. It ensures you are not taxed twice on the same income by providing mechanisms such as foreign tax credits. You must still report global income in your country of tax residence.

How to Apply Treaty Rates in India

If you are a Canadian tax resident earning interest from an Indian bank, the bank will apply TDS at the domestic rate (typically 30% plus surcharge and cess for NRIs). To claim the lower DTAA rate of 15%, you must submit a Tax Residency Certificate (TRC) issued by CRA along with Form 10F to the Indian payer. Without these documents, the domestic rate applies, and you must claim a refund through your Indian tax return.

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T1135: Foreign Income Verification Statement -- The Form Most Canadian NRIs Get Wrong

What Is the T1135?

The T1135, Foreign Income Verification Statement, is a CRA reporting form that Canadian tax residents must file if, at any time during the tax year, the total cost of all specified foreign property they held exceeded CAD 100,000. This is arguably the most consequential compliance requirement for Canadian NRIs with Indian assets.

What Counts as Specified Foreign Property?

The definition is broader than most people realize:

• Bank accounts outside Canada: NRO accounts, NRE accounts, savings accounts, fixed deposits in Indian banks
• Shares of non-resident corporations: Indian company shares, even those held in a Demat account
• Mutual fund units: Indian mutual fund holdings
• Real estate held for income or gain: Rental property in India (but NOT personal-use property that generates no income)
• Interests in non-resident trusts: Beneficial interests in Indian trusts
• Bonds, debentures, notes: Indian government bonds, corporate debentures
• Precious metals and commodities held outside Canada: Gold held in Indian lockers (if held as investment)
• Life insurance policies with foreign insurers: LIC policies with cash surrender value

The CAD 100,000 Threshold -- Total Cost, Not Market Value

A critical distinction: the threshold is based on the aggregate cost amount (generally, the adjusted cost base) of all specified foreign property, not the current market value. If you purchased Indian property for INR 50 lakhs twenty years ago and it is now worth INR 3 crores, the cost amount remains the original purchase price converted to CAD at the exchange rate prevailing at the time of acquisition.

However, many NRIs inadvertently exceed the threshold when you aggregate all assets: an NRO fixed deposit of INR 25 lakhs, an NRE savings balance of INR 15 lakhs, mutual fund investments of INR 20 lakhs, and a small rental property purchased for INR 30 lakhs can easily cross CAD 100,000 in total.

Simplified vs. Detailed Reporting

• Category A (Simplified): If total cost is between CAD 100,000 and CAD 250,000, you can use the simplified reporting method -- just check the categories of property held and report the top three countries.
• Category B (Detailed): If total cost exceeds CAD 250,000, you must provide detailed information for each property, including the name of the institution, country, maximum cost during the year, cost at year-end, income earned, and gain or loss on disposition.

Penalties for Non-Filing or Late Filing

• Late filing penalty: CAD 25 per day, up to a maximum of CAD 2,500
• Failure to file for more than 24 months: Penalty increases to CAD 500 per month, up to CAD 12,000
• Gross negligence: Penalty of 5% of the cost amount of the unreported property
• False statement or omission: Penalty of the greater of CAD 24,000 or 5% of the cost amount

These penalties are assessed per year. If you have not filed T1135 for five years, the cumulative penalties can be devastating.

Need help filing your T1135? Our cross-border tax team handles hundreds of India-Canada filings annually. Book a consultation now or reach us on WhatsApp at +91-96677 44073.

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RRSP and TFSA: How India Taxes Your Canadian Retirement Savings

RRSP (Registered Retirement Savings Plan) -- Indian Tax Treatment

The RRSP is a Canadian tax-deferred retirement savings vehicle. Contributions are tax-deductible in Canada, and investment growth is not taxed until withdrawal. Under the India-Canada DTAA, the treatment is relatively favorable:

• During accumulation: India does not tax the growth within your RRSP while you remain a Canadian tax resident. The DTAA recognizes RRSP as a pension arrangement, and the accruing income is not subject to Indian tax.
• On withdrawal: RRSP withdrawals are taxed as income in Canada. Under Article 18 (Pensions and Annuities) of the DTAA, pension income is generally taxable in the country of residence. If you withdraw while a Canadian resident, Canada taxes it, and India does not.
• If you return to India: If you become an Indian tax resident and withdraw RRSP funds, Canada will withhold tax (25% for lump sums under Part XIII of the Canadian Income Tax Act, reduced to 15% under the DTAA for periodic pension payments). India will tax the withdrawal as income but will grant a foreign tax credit for the Canadian withholding tax.

TFSA (Tax-Free Savings Account) -- A Problematic Vehicle for NRIs

The TFSA presents a unique challenge because India does not recognize it as a tax-exempt vehicle:

• India's position: Since there is no specific provision in the DTAA for TFSAs (which did not exist when the treaty was signed in 1996), India may tax the income earned within the TFSA -- interest, dividends, and capital gains -- in the hands of the Indian tax resident. If you return to India, the TFSA income becomes taxable in India despite being tax-free in Canada.
• CRA's position: If you become a non-resident of Canada, you cannot make further TFSA contributions. However, the existing balance continues to grow tax-free in Canada.
• Practical implication: For NRIs contemplating a return to India, unwinding the TFSA before departure can be more tax-efficient than maintaining it as a non-resident.

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CRA Reporting of Indian Income: Your Global Income Obligation

As a Canadian tax resident, you are taxed on your worldwide income. This means every rupee of Indian income must be reported on your Canadian T1 General return, including:

• NRO/NRE interest income: Even though India deducts TDS, you must report the gross interest on line 12100 of your T1 return
• Rental income from Indian property: Report net rental income on line 12600 (converted to CAD)
• Capital gains from sale of Indian shares or property: Report on Schedule 3
• Dividend income from Indian companies: Report on line 12100
• Pension income from India: Report on line 11500 or 13000

The foreign tax credit mechanism (Form T2209, Federal Foreign Tax Credits) prevents double taxation. You claim credit for taxes paid to India against your Canadian tax liability on the same income.

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NRO and NRE Interest: Taxation in Both Countries

NRO Account Interest

• India: TDS at 30% (plus applicable surcharge and 4% health and education cess) on interest earned. Reduced to 15% under DTAA if TRC and Form 10F are submitted.
• Canada: The gross interest (before Indian TDS) must be reported as foreign interest income. You claim a foreign tax credit for the Indian TDS paid.

NRE Account Interest

• India: Fully exempt from Indian income tax under Section 10(4)(ii) of the Income Tax Act, as long as you maintain NRI status under FEMA.
• Canada: Here is where many NRIs make a costly mistake -- the NRE interest is exempt in India, but it is fully taxable in Canada. You must report it on your Canadian return. Since no Indian tax was paid, there is no foreign tax credit to claim. This is pure Canadian-taxable income.

Common mistake: Assuming NRE interest is "tax-free" globally. It is tax-free only in India. Canada taxes it at your full marginal rate.

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Selling Indian Property as a Canadian NRI: A Step-by-Step Walkthrough

This is the single most complex cross-border transaction for Canadian NRIs. Here is the complete process.

Step 1: Determine Your Holding Period and Tax Treatment in India

• Short-Term Capital Gains (STCG): If the property is held for less than 24 months, gains are taxed at your applicable slab rate (30% for NRIs on income above INR 10 lakhs, plus surcharge and cess).
• Long-Term Capital Gains (LTCG): If held for 24 months or more, gains are taxed at 12.5% without indexation (as per the Finance Act 2024 amendments, effective from AY 2025-26 onwards). Note that the earlier 20% with indexation benefit for property acquired before July 23, 2024 may apply -- consult your advisor for your specific situation.

Step 2: TDS Obligations of the Buyer in India

The buyer of your Indian property must deduct TDS under Section 195:

• LTCG: TDS at 12.5% (plus surcharge and cess) on the entire sale consideration (not just the gain, unless you obtain a lower deduction certificate under Section 197)
• STCG: TDS at 30% (plus surcharge and cess)

Critical action: Apply for a lower or nil TDS certificate under Section 197 from the Indian income tax officer. Without this, TDS is applied on the gross sale amount, leading to massive over-deduction.

Step 3: File Your Indian Tax Return and Claim Refund (if applicable)

File ITR-2 in India, report the capital gains, compute your actual tax liability, and claim a refund for any excess TDS deducted. Ensure you report all Indian income -- not just the property sale.

Step 4: Report the Sale in Canada

• Report the capital gain on Schedule 3 of your T1 return
• The cost base must be converted to CAD at the exchange rate prevailing on the date of original purchase
• The sale proceeds must be converted at the rate prevailing on the date of sale
• Any improvement costs are added to the adjusted cost base (converted at the exchange rate when incurred)

Step 5: Claim Foreign Tax Credit in Canada

File Form T2209 to claim a foreign tax credit for the Indian LTCG/STCG tax paid. The credit is limited to the lesser of:

• The actual Indian tax paid on the gain
• The Canadian tax attributable to the same gain

Section 116 Clearance Certificate (Canada Side)

Section 116 of the Canadian Income Tax Act applies when a non-resident of Canada disposes of taxable Canadian property. This is relevant if you are selling Canadian property while being an Indian resident (the reverse scenario). The non-resident seller must either:

• Obtain a clearance certificate from CRA before or shortly after closing
• Or the buyer must withhold 25% of the sale price and remit it to CRA

For Canadian NRIs selling Indian property, Section 116 does not apply (since the property is in India, not Canada). However, if you are an NRI who has left Canada and is selling Canadian real estate, Section 116 becomes critical. Failure to obtain the certificate exposes the buyer to liability, and many buyers will refuse to close without it.

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Practical Example: Canada NRI Selling Indian Property

Scenario: Rajesh, a Canadian permanent resident living in Toronto, sells a residential flat in Mumbai that he purchased in 2014.

In India:

• Long-term capital gain: INR 1,80,00,000 minus INR 65,00,000 (cost plus improvements) = INR 1,15,00,000
• LTCG tax at 12.5% = INR 14,37,500 (plus surcharge and cess, approximately INR 14,95,000)
• TDS would have been deducted by the buyer; Rajesh files ITR-2 and claims any excess refund

In Canada:

• Rajesh reports the taxable capital gain of CAD 85,809 on Schedule 3
• At a marginal tax rate of approximately 43% (Ontario), the Canadian tax on this gain would be approximately CAD 36,898
• Indian tax paid of approximately INR 14,95,000 converts to approximately CAD 24,113
• Foreign tax credit claimed via Form T2209: CAD 24,113
• Net Canadian tax payable: CAD 36,898 minus CAD 24,113 = CAD 12,785

Result: Rajesh pays a total of approximately CAD 24,113 (Indian tax) + CAD 12,785 (Canadian top-up) = CAD 36,898 in combined tax. Without the DTAA foreign tax credit, he would have paid approximately CAD 61,011 -- nearly double.

Selling Indian property from Canada? Our team manages the entire process -- Section 197 certificates, ITR filing, Form T2209, and Schedule 3 reporting. Start your filing now or WhatsApp us at +91-96677 44073.

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Indian Mutual Funds for Canadian NRIs: The PFIC-Like Problem

Canadian NRIs investing in Indian mutual funds face a significant compliance and tax challenge similar to the US PFIC (Passive Foreign Investment Company) regime.

CRA Treatment of Indian Mutual Funds

Indian mutual funds are classified as foreign investment entities or non-resident trusts under Canadian tax law. The income earned within these funds -- whether distributed or not -- may need to be reported annually under the foreign accrual property income (FAPI) rules or the offshore investment fund property (OIFP) rules under Section 94.1 of the Canadian Income Tax Act.

Under OIFP rules, if a Canadian resident holds an interest in a non-resident entity and it is reasonable to conclude that one of the main reasons for the investment is to derive a benefit from portfolio investments in a manner that reduces Canadian tax, an imputed return (typically the prescribed rate plus 2%) is added to the taxpayer's income annually -- regardless of whether any actual distribution was received.

Practical Impact

• Equity mutual funds in India: Capital gains are taxed at 12.5% LTCG (above INR 1.25 lakh) in India. In Canada, the OIFP rules may impute annual income, making equity mutual funds highly tax-inefficient for Canadian residents.
• Debt mutual funds in India: Taxed at slab rates in India (as per Finance Act 2023 amendments). In Canada, the same OIFP issue applies.
• ELSS (Equity Linked Savings Scheme): The 3-year lock-in makes these particularly problematic, as you cannot dispose of them even if the OIFP imputed income makes them uneconomical.

Recommendation

Most cross-border tax advisors recommend that Canadian NRIs avoid holding Indian mutual funds. Instead, invest in Indian equities directly (which have clearer tax treatment) or use Canadian-listed ETFs that provide emerging market or India-specific exposure.

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Pension Taxation Under the India-Canada DTAA

Indian Pension Received by Canadian Residents

Under Article 18 of the DTAA, pensions paid in respect of past employment are generally taxable only in the country of residence. If you are a Canadian tax resident receiving an Indian pension (for example, from a former employer or the government), the pension is:

• Taxable in Canada: Report on your T1 return
• Exempt in India (for private pensions): India should not withhold tax, though in practice, Indian employers sometimes deduct TDS. You would need to file in India to claim a refund and rely on the DTAA exemption
• Government pensions: Government service pensions (Article 19) are taxable only in the country paying the pension, unless you are a citizen and resident of the other country. An Indian government pension paid to a Canadian citizen and resident is taxable in Canada.

Canada Pension Plan (CPP) and Old Age Security (OAS) for NRIs in India

If you return to India after working in Canada:

• CPP: Subject to 25% non-resident withholding tax in Canada, reduced to 15% under the DTAA for periodic pension payments. You report this in India and claim a foreign tax credit for the Canadian withholding.
• OAS: Same treatment -- 25% withholding reduced to 15% under DTAA. However, OAS is also subject to the OAS clawback (recovery tax) if your worldwide income exceeds the threshold.

India-Canada Social Security Agreement

The India-Canada Social Security Agreement (separate from the DTAA) allows totalization of contribution periods. If you worked in both countries but did not complete the minimum contribution period in either, the agreement allows you to combine periods to qualify for benefits. This is particularly relevant for CPP/QPP and Indian EPF/EPS eligibility.

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Form 67 in India: Claiming Foreign Tax Credit

When you pay tax in Canada on income that is also taxable in India, you claim the foreign tax credit in India using Form 67 under Rule 128 of the Income Tax Rules.

Key Requirements

• Form 67 must be filed on or before the due date of filing the return of income (typically July 31 for individuals, extended if applicable)
• You must attach proof of taxes paid in Canada (T4 slips, Notice of Assessment, or a certificate from CRA)
• The credit is computed on a country-by-country and income-by-income basis -- you cannot pool credits across countries or income types
• The credit is limited to the lower of the Indian tax on that income or the Canadian tax paid on the same income

Common Scenario

An NRI who has returned to India receives RRSP withdrawal income. Canada withholds 25% (or 15% under DTAA for periodic payments). The NRI reports this income in India, pays tax at slab rates, and files Form 67 to claim credit for the Canadian withholding tax.

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Common Mistakes Canadian NRIs Make

1. Not Filing T1135

The most frequent and most expensive mistake. If your aggregate Indian assets exceed CAD 100,000 in cost, you must file T1135. Period.

2. Treating NRE Interest as Globally Tax-Free

NRE interest is exempt in India only. Canada taxes it at your full marginal rate. Failing to report it is tax evasion.

3. Not Reporting Indian Rental Income

Many NRIs own property in India that generates rental income. This must be reported in Canada, and you can claim foreign tax credit for Indian taxes paid on the same income.

4. Ignoring Section 197 Certificates When Selling Property

Without a lower deduction certificate, the buyer deducts TDS on the full sale consideration at 12.5% or 30%. This locks up a significant amount of your money until you file and receive a refund from Indian IT authorities -- a process that can take 12 to 18 months.

5. Not Converting at the Correct Exchange Rate

CRA requires conversion to CAD at the Bank of Canada exchange rate on the date of the transaction. Using annual average rates when specific transaction dates are available is incorrect.

6. Failing to File Form 67 in India

Without Form 67 filed by the due date, you lose the foreign tax credit in India entirely. This is a procedural requirement that, if missed, results in double taxation even when the DTAA provides relief.

7. Holding Indian Mutual Funds Without Understanding OIFP Rules

The imputed income under Section 94.1 can result in phantom tax liability -- you pay Canadian tax on income you never actually received.

8. Not Maintaining Proper Records of Cost Base in CAD

When you eventually sell Indian assets, you need the original cost in CAD. Reconstruct it years later using historical exchange rates, and errors are inevitable. Maintain records from day one.

9. Assuming the DTAA Provides Automatic Relief

The DTAA is not self-executing. You must actively claim treaty benefits through the correct forms (TRC, Form 10F, Form T2209, Form 67) in the correct jurisdiction by the correct deadline.

10. Ignoring Provincial Tax Differences

Foreign tax credits in Canada have both a federal component (Form T2209) and a provincial component (varies by province -- for Ontario, it is Form ON428). Many NRIs claim only the federal credit and lose the provincial credit.

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Frequently Asked Questions (FAQs)

1. Do I need to file taxes in India if I am a Canadian tax resident?

If you earn any income in India -- interest, rent, capital gains, dividends -- you must file an Indian income tax return to report that income and claim applicable deductions or treaty benefits. Even if TDS has been fully deducted, filing a return is mandatory if your Indian income exceeds the basic exemption limit.

2. What exchange rate should I use for converting INR to CAD?

Use the Bank of Canada daily exchange rate on the date of each specific transaction. For recurring income like monthly rent, you may use the monthly average rate published by the Bank of Canada. Consistency in methodology is key.

3. Is my Indian property reportable on T1135?

Only if it is held for the purpose of earning income (rental property) or for capital appreciation. A personal-use property (your parents' home that you stay in during visits, generating no income) is generally excluded. However, if you rent it out even occasionally, it becomes reportable.

4. Can I hold NRE and NRO accounts after becoming a Canadian citizen?

Yes, as long as you remain an NRI under FEMA (which you are, as a Canadian citizen residing outside India). Canadian citizenship does not affect your NRI status under Indian law. However, if you return to India, you must convert NRE/NRO accounts to resident accounts within a reasonable period.

5. How is rental income from India taxed in Canada?

Compute net rental income under Indian tax law (gross rent minus municipal taxes, standard deduction of 30%, and interest on home loan). Then compute it again under Canadian tax law (gross rent minus actual expenses, depreciation via CCA). Report the Canadian-computed figure on your T1 return and claim a foreign tax credit for Indian taxes paid.

6. What happens to my EPF when I move to Canada?

Your Employee Provident Fund (EPF) continues to earn interest for up to 3 years after you leave employment. After 3 years, the interest becomes taxable in India (and must be reported in Canada). You can withdraw the full EPF balance after leaving India. TDS will apply at 10% if you have a PAN (30% without PAN), and you report the withdrawal in Canada as foreign income with a foreign tax credit.

7. Should I close my LIC policies after moving to Canada?

LIC policies with a surrender value are reportable on T1135 if total specified foreign property exceeds CAD 100,000. The maturity proceeds are taxable in Canada as income. Evaluate whether the after-tax return justifies continuing the policy. In many cases, surrendering and reinvesting in Canadian-tax-efficient vehicles is advisable.

8. Is there a tax treaty benefit for Indian bank FD interest?

Yes. Under the India-Canada DTAA, interest is capped at 15% withholding in India (domestic rate is 30% plus surcharge and cess). Submit your TRC from CRA and Form 10F to the Indian bank to avail the lower rate. In Canada, report the gross interest and claim foreign tax credit for the 15% withheld.

9. Can I invest in Indian stocks from Canada?

Yes, through your existing Demat account (most brokers allow NRI trading on a repatriation or non-repatriation basis). Short-term capital gains (holding less than 12 months for listed equity) are taxed at 20% in India. Long-term capital gains (above INR 1.25 lakh) are taxed at 12.5%. Report both in Canada and claim foreign tax credit. Direct stock holdings are generally more tax-efficient than Indian mutual funds for Canadian residents.

10. What if I have not filed T1135 for past years?

CRA offers the Voluntary Disclosures Program (VDP). Under the VDP, if you make a valid disclosure before CRA contacts you, penalties may be waived (under the income tax stream) or reduced. You must file all outstanding T1135 forms and any amended tax returns. Act quickly -- the VDP is discretionary, and CRA has been tightening eligibility criteria.

11. How do capital gains on Indian shares work under the DTAA?

Under Article 13 of the India-Canada DTAA, gains from the alienation of shares may be taxed in the country where the company is resident if the shares derive more than 50% of their value from immovable property in that country. For other shares, the gain is generally taxable in the country of residence (Canada). However, India's domestic law still imposes capital gains tax on share transfers, so in practice, you pay Indian capital gains tax and claim foreign tax credit in Canada.

12. Is the India-Canada DTAA affected by the recent diplomatic tensions?

As of 2026, the India-Canada DTAA remains in force. Tax treaties are separate from diplomatic relations and require formal notice of termination (typically 6 months before the end of a calendar year). Neither country has initiated termination proceedings. However, administrative cooperation (exchange of information, MAP requests) may experience delays during periods of diplomatic strain.

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The Bottom Line: Cross-Border Tax Compliance Is Not Optional

The CRA and Indian Income Tax Department have robust information exchange mechanisms under the Common Reporting Standard (CRS) and the DTAA. Indian banks report NRI account details to Indian authorities, who share them with CRA. CRA shares Canadian financial account information with India. The era of undisclosed foreign income is over.

Proper cross-border tax planning can save you thousands of dollars annually while keeping you fully compliant. Improper handling -- or worse, non-compliance -- can result in penalties, interest, and reassessments that dwarf the original tax liability.

Whether you are a recently arrived immigrant from India, a long-time Canadian citizen with Indian investments, or an NRI contemplating a return to India, your tax situation demands professional attention from advisors who understand both jurisdictions intimately.

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How MKW Advisors Can Help

Our cross-border tax practice handles the complete India-Canada tax lifecycle:

• T1135 preparation and past-year filings (including Voluntary Disclosures Program applications)
• Indian property sale management -- Section 197 certificates, ITR filing, capital gains computation, and Canadian reporting
• DTAA optimization -- ensuring you claim every treaty benefit available
• RRSP/TFSA repatriation planning for NRIs returning to India
• NRO/NRE account structuring for tax efficiency
• Form 67 and Form T2209 foreign tax credit filings in both countries
• CRA audit defense for foreign income and T1135 matters
• Indian mutual fund exit planning and reinvestment in tax-efficient structures

Take the next step today:

• Book a consultation with our cross-border tax team
• WhatsApp: +91-96677 44073
• Email: [email protected]

CA Mayank Wadhera is a Chartered Accountant, Company Secretary, Cost and Management Accountant, and IBBI Registered Valuer. He leads the cross-border tax practice at MKW Advisors, with specialized expertise in India-Canada, India-US, and India-UK tax corridors. The firm operates through its integrated platforms Legal Suvidha and DigiComply.

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Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Tax laws are subject to change, and individual circumstances vary. Consult a qualified cross-border tax professional before making decisions based on this information. The DTAA rates and provisions discussed are based on the treaty text as in force in 2026 and applicable domestic law amendments through the Finance Act 2025.