A Comparison Between India and Canada Tax Terms

Who's in charge of tax filings in Canada?

If you've filed taxes in India before, you've likely interacted with the Indian Revenue Service (IRS), which takes care of tax collection there. In Canada, however, the Canada Revenue Agency (CRA) administers tax laws. Here's how the two compare.

Indian Revenue Service (IRS)

In India, the IRS operates under the income tax department to handle income and corporate taxes. The IRS ensures that individuals and businesses comply with India's tax regulations, pay their taxes due, and file their returns on time.

Additionally, the IRS plays a key role in implementing tax policies, resolving disputes, and overseeing tax collection across the country.

Canada Revenue Agency (CRA)

The CRA is the government body responsible for everything related to income taxes in Canada. As a new Canadian, you'll find it helpful to open a My Account for individuals with the CRA to file your taxes and manage government benefits like the Canada Child Benefit (CCB). All communication regarding your taxes will happen directly with the CRA.

The CRA manages both income taxes and sales taxes like the Canada Groceries and Essentials Benefit (formerly the GST/HST credit) in certain provinces. ​​Unlike India, where certain state taxes are managed separately, the CRA collects taxes at both federal and provincial levels.

Understanding your tax identification

In India, your tax ID is the Permanent Account Number (SOCIAL INSURANCE). But, in Canada, your key identifier is your Social Insurance Number (SIN). Here's how the 2 numbers differ.

Permanent Account Number (SOCIAL INSURANCE)

If you've used any financial services in India, you most likely know what a Permanent Account Number (SOCIAL INSURANCE) is. This 10-character alphanumeric ID, issued by the Income Tax Department, tracks all your tax-related transactions and information. Banks, mutual fund companies, and other financial institutions also use your SOCIAL INSURANCE to report your financial information to the Income Tax Department.

Social Insurance Number (SIN)

In Canada, you'll need to apply for a Social Insurance Number (SIN) as your primary identifier for tax and employment purposes. This 9-digit number, issued by Service Canada, is required for working, paying taxes, and accessing government programs like the Canada Groceries and Essentials Benefit (formerly the GST/HST credit) and employment insurance.

For new Canadians, one of the first steps is figuring out how to get a social insurance number. You can apply for a SIN number online or in person at a Service Canada office. There are 2 main types of SINs:

• Resident SIN. This is the standard SIN issued to Canadian citizens and permanent residents. It allows full access to tax services and government benefits. It begins with any number except for "9".
• Non-resident SIN. This is issued if you're a temporary resident or don't have full resident status. This number begins with a “9” and is necessary for working and filing taxes, but certain social benefits may not be available to non-residents. The Temporary Resident SIN is issued those who have a temporary authorization to work. The SIN itself carries an expiration date tied to their immigration status. While holders of a '9' SIN can file taxes, their access to certain social benefits may be restricted based on their temporary status, rather than the SIN's starting digit alone.

By understanding what a Social Insurance Number is and how it works, you'll be better equipped to manage your tax obligations and access the benefits you're eligible for in Canada.

Which individual tax return forms should you use?

In India, the tax system offers multiple Income Tax Return (ITR) forms to choose from based on your income sources. In Canada, individuals use just one form: the T1 General tax return. Here are the key differences between these forms.

ITR forms

In India, individuals need to choose the appropriate Income Tax Return (ITR) form based on their income sources and residential status. Among the 7 available ITR forms, you need to file the one that best matches your income profile:

• ITR 1: For resident individuals with income up to INR 50 lakh from a salary, house property, or other sources like interest income.
• ITR 2: For individuals and Hindu Undivided Families (HUFs) who earn income from salary/pension, multiple house properties, capital gains, and foreign assets.
• ITR 3: If you earned income from profits or gains from a business or profession, in addition to salary income.
• ITR 4: For small businesses with an annual turnover of up to INR 30 million and self-employed individuals earning INR 7.5 million.

T1 Tax General form

Unlike India, where you choose between multiple ITR forms, the T1 General is the main form that individuals use to file income tax and access many Canadian financial benefits. Whether you earn income from a job, self-employment, capital gains, investment, or a pension, you'll report it all on the T1 Tax General form.

You'll also use this form to claim non-refundable and refundable tax credits:

• Non-refundable tax credits. These credits lower the amount of income tax you owe, but they can't reduce your tax liability below zero. For example, if your total tax payable is $5,000 and you claim $6,000 in non-refundable credits, your tax bill is reduced to $0. You won't get $1000 ($6,000-$5,000) as a refund.
• Refundable tax credits. These credits can result in a refund, even if you don't owe any taxes. For instance, if your tax liability is $0 and you are eligible for a $1,000 refundable credit, you'll receive it as a payment from the government.

If you're a self-employed individual or owner of an unincorporated small business, report your business income using the T2125 Statement of Business Activities. This form, a part of the T1 General, allows you to report business income and expenses and calculate net income for tax purposes.

Note: Most individuals have to file their personal T1 General form and pay any owed taxes by April 30. However, if you or your spouse/common-law partner is self-employed, you have until June 15 to file, though any taxes owed must still be paid by April 30.

What tax forms do incorporated businesses need?

In India, your business structure determines which ITR forms you need to use, while if you're incorporated in Canada, you'll need to file the T2 corporation income tax return. Here's a rundown of the forms.

ITR forms for businesses

Businesses can use the following ITR forms in India:

• ITR 5. For firms, limited liability partnerships (LLPs), business trusts, investment funds, and more.
• ITR 6. For all companies that don't earn their income from property held for religious or charitable purposes.
• ITR 7. For charitable trusts, political parties, and scientific research associations.

T2 corporation income tax return form

In Canada, all resident corporations must file the T2 corporation income tax return within 6 months of the year-end of the business. Even non-profits and inactive corporations must file a T2 if no taxes are payable. Additionally, non-resident corporations must file a T2 return if, at any point during the year, one of the following applies:

• the corporation carried on business in Canada
• it had a taxable capital gain
• it disposed of taxable Canadian property

How do you report your income?

Whether you're in India or Canada, your employer will send you a document—often digitally—summarizing your earnings and tax deductions. Called Form 16 in India and the T4 Statement of Remuneration in Canada, here's how these documents work in each country:

Form 16

In India, your employer issues a Form 16 detailing the salary paid and the taxes deducted at source (TDS) throughout the fiscal year. Employers issue Form 16 by June 15 of the assessment year. This document includes information like your gross income, tax deductions, and your net taxable income.

T4 Statement of Remuneration

In Canada, the T4 Statement of Remuneration is the key document your employer issues, summarizing your employment income and the taxes withheld throughout the year. Employers are required to issue the T4 by the last day of February of the following tax year (January to December) to detail your:

• employment income
• income tax withheld by the employer on both federal and provincial levels
• contributions to the Canada Pension Plan (CPP)
• premiums paid to Employment Insurance (EI)
• company-paid taxable benefits (such as health insurance or other perks)

While the T4 is created on your behalf, it's important to remember that you are ultimately responsible for ensuring its accuracy. You must review it carefully to make sure your reported earnings and deductions are correct.

You'll receive a T4 from each employer you worked for during the tax year.

How is income tax calculated?

Now that we've explored the key differences between India's and Canada's tax systems, below explains how income tax is calculated in each country.

Taxation in India

India's fiscal year runs from April 1 to March 31 and gives you a choice between 2 tax regimes:

1. Old tax regime. This regime allows for tax deductions and exemptions. It uses progressive tax rates based on income levels, with tax slabs starting from 5% for income above INR 2.5 lakh.
2. New tax regime. Introduced in 2020, this regime offers lower tax rates but without the benefit of most deductions and exemptions. Tax slabs start at 5% for income over INR 4 lakh and go up to 30% for income above INR 24 lakh.

Taxation in Canada

Canada's tax system combines federal and provincial/territorial taxes, which are applied progressively. The higher your income, the higher your tax rate. For the 2024 tax year, the federal income tax rates are as follows.

1. 15% on the first $55,867 of your taxable income.
2. 20.50% on the next portion of your income above $55,867 up to $111,733.
3. 26% on the portion of your income above $111,733 up to $173,205.
4. 29% on the portion of your income above $173,205 up to $246,752.
5. 33% on the portion above $246,752.

In addition to federal taxes, you'll also pay taxes based on the rates set by the province or territory where you reside as of December 31. Each province and territory has its own tax rates.

For example, in 2024, Alberta's provincial tax rates ranged from 10% to 15%, depending on income level. Combined with the federal tax rates, the total tax rate ranged between 25% and 48%.

How to file your taxes in Canada

Calculating your income tax is only part of the process. To fully complete your tax obligations, you must know how to file your tax return and review your Notice of Assessment (NOA).

New Canadians may need to mail in their first income tax return to the CRA. Once you've filed your first tax return, you can register for CRA's My Account to electronically file your taxes in the future with the help of:

• TurboTax software. Products include options for preparing taxes online by yourself, as well as getting a final review by a tax expert to ensure accuracy.
• TurboTax Full Service. Have a tax expert complete and electronically file your return for you.
• NETFILE. Use the CRA's electronic filing service to submit your return online directly.

Once the CRA processes your tax return, they will send you the NOA via electronic or physical mail, depending on your chosen communication option. The NOA confirms the details of your tax return, states any refund or balance due, and highlights any corrections made by the CRA. You should keep the NOA for 6 years from the end of the tax year to which they relate. So, the NOA you'll receive for the 2024 tax year must be kept until the end of 2030.

With a solid understanding of Canada's tax terms and processes, you're now equipped to file your taxes accurately, just as you did in India.

Your tax situation can be unique. With TurboTax you have options.

TurboTax can help demystify taxes for those who are new to Canada. File on your own, with a helping hand, or we'll do it for you.

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