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Will We Get Tax Relief If Tax Was Deducted At Source In Canada?

April 14, 2008 by Leave a Comment
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Indian Company has given loan, to its subsidiaries situated in Canada.Subsidiaries in Canada pays interest, to Indian parent Company after deducting Tax as per Canadian Taxation Laws.My queries are:Will Indian Parent Company be eligible for any benefit of Tax deducted by subsidiaries?Will such interest income will be taxed in the Hands of Indian Company ( resident- global income). Sargam Iyer , Mumbai
The interest income is definitely taxable in the hands of Indian company as the global income of a resident is taxable under Indian Income Tax Act. However , since there is Double Taxation Avoidance Agreement signed between Indian and Canada , there is specific provision under DTAA to avoid such double taxation.
Clause 3 of Article 23 provides as under


3. In the case of India, double taxation shall be avoided as follows :

(a) The amount of Canadian tax paid, under the laws of Canada and in
accordance with the provisions of the Agreement, whether directly or by
deduction, by a resident of India, in respect of income from sources within
Canada which has been subjected to tax both in India and Canada shall be allowed
as a credit against the Indian tax payable in respect of such income but in an
amount not exceeding that proportion of Indian tax which such income bears to
the entire income chargeable to Indian tax. ..

Therefore it is clear if Canada takes tax on an income which is also taxable in India, taxpayer will be given credit of tax paid in India. Under income tax law, there is specific provision u/s 90 of the I T Act which provides for the method of computation of credit in case any income has already been taxed in a country with which India has signed DTAA . You should read more about this in following two articles:
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