Indian rental income when you are a Canadian tax resident

In India the rent is income from house property, taxed after a flat 30% standard deduction under Section 24, which you get whatever you actually spent, and after home-loan interest, at slab rates. As a non-resident landlord, your tenant must deduct TDS under Section 195 on the gross rent, roughly 31% before you file, not the small resident rate.

That TDS is on the gross, so it takes far more than your real Indian tax after the 30% deduction. It is only withholding, not your final India tax, a point many miss and overpay on. You recover the excess by filing an Indian return, or reduce it up front with a lower-deduction certificate. Under the treaty, Article 6 gives India the first right to tax the rent, so the India charge is expected.

Canada taxes a resident on worldwide income, so the Indian rent goes on your Canadian return, computed in Canadian dollars on Canadian rules. Instead of India's flat 30%, Canada allows your actual expenses, and an optional capital cost allowance, a depreciation claim, on the building but not the land. Two Canadian quirks matter: that depreciation cannot create or increase a rental loss, and if you claim it, it is recaptured and taxed when you eventually sell.

Canada then gives a foreign tax credit for the India tax on the rent. Helpfully, because rental is income from real property, the general cap that limits the credit on other foreign income to 15% does not apply here, so the full India tax is creditable, up to the Canadian tax on that rent. But because the two countries measure the taxable rent differently, India's flat 30% versus Canada's actual costs, the figures rarely match, and a Canadian top-up commonly remains. It is worth modelling both rather than assuming the India tax cancels the Canadian one.

There is a reporting trap specific to Canada. If the cost of your Indian property is more than CAD 100,000, you must file Form T1135, the Foreign Income Verification Statement, each year. A personal-use home is exempt, but a rented or investment property is not, and the penalties for missing T1135 are steep, so it should not be overlooked.

The practical work is a clean Indian return and the right figures for the Canadian side: the 30% deduction and interest claimed, the over-deducted TDS recovered, and the India tax paid recorded in Canadian dollars for the credit. A practising CA files the Indian side, reclaims the gross-basis TDS, and gives your Canadian accountant the India-tax-paid detail for the credit, and flags the T1135 requirement so it is not missed.