Tri-Country Tax Filing for Indians: Canada, U.S., and India

(BENGALURU, INDIA) Tax season across North America has brought a surge of questions from Indian professionals who split their lives among Canada, the United States, and India. Accountants in Toronto and San Jose say they are fielding the same urgent request from clients who studied in Canada, now work in the U.S., and still earn rent or interest in India: how to complete Tri-Country Tax Filing without paying twice on the same rupee or dollar. The concern centers on Double Taxation and whether the treaties known as DTAA—Double Taxation Avoidance Agreement—actually shield income when paperwork runs through three tax systems in one year.

For thousands of Indian students turned workers, the answer this spring is yes, provided filings are sequenced correctly and backed by proof of tax paid in each country.

Why the issue is more visible now

The core driver is not a new law but the steady tightening of cross-border data exchange. Under FATCA and CRS reporting, tax authorities in all three countries can match foreign income and accounts more easily than ever before. That has led many recent H‑1B holders in the U.S. to:

• Revisit what they filed during their Canadian years
• Cleanly exit Canadian tax residency if they have not already done so

Advisers say the missing piece that often triggers accidental Double Taxation is failing to file a Canadian departure return. People leave Canada, never file the departure return, and then find the Canada Revenue Agency (CRA) still treating them as Canadian residents for tax purposes. Meanwhile, the IRS taxes worldwide income and India taxes Indian‑source income. The treaty network can prevent those overlaps, but only if the taxpayer files the right forms and claims the right credits at the right time.

A typical tri-country scenario (example flow)

• Student studies in Vancouver 2018–2021, then moves to the Bay Area on H‑1B in 2022.
• Keeps a flat in Bengaluru earning ₹25,000 a month in rent (Indian‑source income).
• India taxes the rental income first.
• If the taxpayer did not close their Canadian file, they may be treated as a Canadian resident for part of 2021. Filing a departure return declaring the departure date resolves that.
• From 2022 onward, the taxpayer becomes a U.S. tax resident under the Substantial Presence Test and files a U.S. resident return listing the Indian rent and claiming a Foreign Tax Credit for Indian tax already paid.

When all three filings align, the result is one layer of tax on each slice of income and a credit elsewhere — not multiple layers on the same rupee.

Key forms and where they fit

• India
  • ITR‑2 / ITR‑3 — file depending on whether business income exists
  • Schedule TR — claim relief if tax was paid abroad
  • Form 10F and self‑declaration — used for lower withholding and treaty claims
  • Keep Form 26AS as proof of tax paid
• United States
  • Form 1040 — resident return (worldwide income)
  • Form 1040‑NR — non‑resident return
  • Form 1116 — claim the Foreign Tax Credit for Indian tax paid
  • FBAR (FinCEN) — report foreign bank accounts (separate filing)
  • Form 8938 — specified foreign financial assets (if applicable)

• Canada
  • Part‑year T1 — for the departure year
  • T1161 — List of Properties by an Emigrant of Canada
  • T1243 — Deemed Disposition of Property by an Emigrant of Canada
  • These forms settle deemed capital gains and mark the end of Canadian tax residency for worldwide income

Each stage is separate, but the documents must tell a consistent story across borders.

How the Foreign Tax Credit works in practice

Tax practitioners point to April examples. Suppose:

• U.S. wages: $100,000
• Indian rent: ₹300,000 per year
• Indian tax on rent: ₹60,000

The taxpayer reports the rent on the U.S. return and claims a credit on Form 1116 for the ₹60,000 (converted to USD). That credit reduces U.S. tax on the same rent. India already taxed the rent as Indian‑source income, which the DTAA between India and the U.S. contemplates.

For the Canadian side: if the taxpayer was Canadian resident until August 2021 and left in September, Canada expects a part‑year return for 2021 with departure forms attached. Once on file, Canada stops taxing global income from the departure date onward.

Reporting and matching: why missing forms cause trouble

Financial institutions report account balances under global exchange rules, so an NRO/NRE account receiving rent is visible to the IRS and CRA. Specific reporting rules include:

• FBAR (FinCEN) — report foreign bank accounts when thresholds are met
• Form 8938 — for specified foreign financial assets (where applicable)

Missing these reports won’t immediately trigger tax, but they expose taxpayers to penalties and can prompt letters or audits if the amounts and records don’t match across countries.

Treaty mechanics and common documentation requests

• The treaties (India–U.S., India–Canada, U.S.–Canada) generally:
  • Assign primary taxing rights to the country of source (e.g., rent taxed in India)
  • Require the residence country to grant a credit for tax paid in the source country

Officials commonly request:
– Tax Residency Certificate (TRC)
– Form 10F and self‑declaration (India)
– Proof of tax paid (e.g., Form 26AS in India)
– Wage statements (U.S. W‑2, Canadian T4)
– Consistent returns across countries and years

Where problems most often arise

Advisers in Bengaluru and Fremont highlight one recurring issue: failing to file the Canadian exit year. Without that, CRA may deem someone a resident and tax worldwide income, creating overlap with the U.S. obligation to report worldwide income on Form 1040.

Other common pitfalls:
– Missing FBAR (for U.S. residents with Indian bank accounts)
– Skipping Form 8938 when thresholds apply
– Overlooking T1161 when leaving Canada with reportable property
– Assuming treaty = exemption (misunderstanding credit vs. exemption)
– Confusing immigration status with tax residency (days of presence matter)

Practical checklist advisers provide

1. Report Indian‑source income in India even if you live abroad (rent, interest on NRO accounts, dividends).
2. In the U.S., treat yourself as a resident once the Substantial Presence Test is met; file Form 1040 and claim a Foreign Tax Credit on Form 1116.
3. If you lived or studied in Canada, complete the exit process with a part‑year T1 and the departure forms (T1161, T1243).
4. Keep records: TRCs, Form 10F, bank statements, and tax receipts for each country.
5. File foreign account reports on time (FBAR, Form 8938), and convert foreign tax payments into USD appropriately for IRS credit claims.

Small gaps—like a missing TRC or an unfiled FBAR—cause outsized problems relative to the effort required to avoid them.

Reminders about withholding and remittance

• To reduce withholding on Indian rent paid to a non‑resident, Indian rules typically require Form 10F and a self‑declaration, sometimes with a TRC from the country of residence.
• If tax is over‑withheld in India, the Indian return adjusts and issues a refund.
• U.S. residents must report worldwide income regardless of whether money is remitted. Relief comes from the foreign tax credit, not from non‑remittance.

Canada’s departure rules — a particular focus

• T1243 applies a deemed sale at fair market value for certain properties on departure.
• There is an election to defer payment in some cases if adequate security is provided.
• Even students who only studied in Canada benefit from a departure filing to prevent later mistaken residency claims.

Example recap (numbers simplified)

• Bengaluru apartment earns ₹300,000/year; Indian tax = ₹60,000.
• India taxes the rent; the U.S. allows a credit for the ₹60,000 on Form 1116 (subject to credit limits).
• Most filers find the credit absorbs U.S. tax on that rental slice, resulting in no net second layer of tax.
• After a proper Canadian departure filing, Canada makes no claim to that rent.

Useful official resources

• IRS — About Form 1040: https://www.irs.gov/forms-pubs/about-form-1040
• IRS — About Form 1040‑NR: https://www.irs.gov/forms-pubs/about-form-1040-nr
• IRS — About Form 1116: https://www.irs.gov/forms-pubs/about-form-1116
• FinCEN — Report Foreign Bank and Financial Accounts (FBAR): https://www.fincen.gov/report-foreign-bank-and-financial-accounts
• IRS — About Form 8938: https://www.irs.gov/forms-pubs/about-form-8938
• CRA — T1161: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1161.html
• CRA — T1243: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1243.html
• CRA — T1 General: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1.html
• India — Form 10F: https://www.incometax.gov.in/iec/foportal/help/others/form-10f
• CRA — Leaving Canada (emigrants): https://www.canada.ca/en/revenue-agency/services/tax/individuals/leaving-canada.html

Final takeaways

• The treaties themselves have not changed much, but they work when taxpayers follow the right sequence and keep proof.
• The safest approach: report, claim credit, and retain records (TRC, Form 10F, tax receipts, FBAR/8938 filings, Canadian exit forms).
• Timelines matter: each country follows its own calendar, and filing on time in India often unlocks the U.S. credit for foreign tax.
• With the paperwork in order and timelines aligned, Tri‑Country Tax Filing becomes a routine spring task rather than a source of stress about Double Taxation.