A Closer Look at Income Tax in Canada and India

Income Tax in Canada Vs India
Are you contemplating a move from Canada to India or vice versa? Understanding the income tax systems in both countries is essential, as income tax significantly impacts your personal finances and overall quality of life. In this blog post, we'll provide a comprehensive comparison of income tax in Canada and India, covering tax rates, brackets, deductions, exemptions, and tips to minimize your tax liability.

Income Tax Rates and Brackets: 

1. Canada: 

Canada employs a progressive income tax system, meaning higher incomes are subject to higher tax rates.

Federal income tax rates for 2023:

• 15% on the first $53,359 of taxable income
• 20.5% on the next $53,359 of taxable income (portion between $53,359 up to $106,717)
• 26% on the next $106,717 of taxable income (portion between $106,717 up to $165,430)
• 29% on the next $165,430 of taxable income (portion between $165,430 up to $235,675)
• 33% on taxable income exceeding $235,675.

2. India:

India's income tax rates for the financial year 2023-24:

• 5% on the first Rs. 2.5 lakh of taxable income
• 10% on the next Rs. 2.5 lakh of taxable income (portion between Rs. 2.5 lakh and Rs. 5 lakh)
• 20% on the next Rs. 5 lakh of taxable income (portion between Rs. 5 lakh and Rs. 10 lakh)
• 30% on taxable income exceeding Rs. 10 lakh

These rates apply to the old tax regime, which permits various deductions and exemptions.

Alternatively, you can choose the new tax regime with lower rates but fewer deductions:

• Nil on the first Rs. 2.5 lakh of taxable income
• 5% on the next Rs. 2.5 lakh of taxable income (portion between Rs. 2.5 lakh and Rs. 5 lakh)
• 10% on the next Rs. 2.5 lakh of taxable income (portion between Rs. 5 lakh and Rs. 7.5 lakh)
• 15% on the next Rs. 2.5 lakh of taxable income (portion between Rs. 7.5 lakh and Rs. 10 lakh)
• 20% on the next Rs. 2.5 lakh of taxable income (portion between Rs. 10 lakh and Rs. 12.5 lakh)
• 25% on the next Rs. 2.5 lakh of taxable income (portion between Rs. 12.5 lakh and Rs. 15 lakh)
• 30% on taxable income exceeding Rs. 15 lakh

India generally offers lower income tax rates, especially under the new tax regime.

Income Tax Deductions and Exemptions

Canada:

• Basic personal amount: Non-refundable tax credit reducing federal tax payable by up to $13,808 for 2022.
• Spouse or common-law partner amount: Non-refundable tax credit for taxpayers with spouses or partners having no or low income, reducing federal tax payable by up to $13,808 for 2022.
• Canada Pension Plan (CPP) contributions: Mandatory contributions to fund your retirement pension plan.
• Employment Insurance (EI) premiums: Mandatory premiums providing benefits in case of job loss, maternity, or parental leave.
• Registered Retirement Savings Plan (RRSP) contributions: Voluntary contributions to a retirement savings account, deductible up to a certain limit.
• Union dues: Fees paid to trade unions or public servant associations.
• Child care expenses: Expenses incurred for the care of children under 16 years of age or children with disabilities.
• Medical expenses: Expenses for medical services or supplies not covered by a public or private health plan, for yourself, your spouse or partner, or your dependents.

India:

• Basic exemption limit: Varies by age group—Rs. 2.5 lakh for individuals below 60, Rs. 3 lakh for senior citizens (60-80), and Rs. 5 lakh for super senior citizens (above 80).
• Standard deduction: Flat Rs. 50,000 deduction available to salaried individuals and pensioners.
• House rent allowance (HRA): Exempt amount depends on factors like rent paid, salary received, and city of residence.
• Leave travel allowance (LTA): Exempt amount determined by factors such as mode of travel, distance, and accompanying family members.
• Section 80C deductions: Deductions available for various investments and expenses, including life insurance premiums, provident fund contributions, tuition fees, home loan principal repayment, up to a maximum of Rs. 1.5 lakh.
• Section 80D deductions: Available for health insurance premiums paid for yourself, your spouse, children, and parents, with a maximum deduction of Rs. 25,000 for individuals below 60 and Rs. 50,000 for senior citizens.
• Section 80TTA deductions: Available for interest income earned from savings accounts in banks, post offices, or co-operative societies, with a maximum deduction of Rs. 10,000.

Tips to Minimize Your Tax Liability: 

• Choose the right tax regime in India:Compare the old and new tax regimes to select the one aligning with your income level and spending habits.
• Claim all eligible deductions and exemptions: Keep meticulous records of income and expenses to claim all applicable deductions and exemptions in both countries.
• Invest in tax-saving instruments: Utilize tax-saving options like RRSPs, TFSAs, RESP in Canada, and PPF, NSC, ELSS in India, to save for the future while reducing your tax liability.
• File your tax returns on time: Adhere to tax filing deadlines in both countries to avoid penalties and interest on unpaid taxes.

Conclusion: Income tax is a vital aspect of personal finance, significantly impacting your decision to move between Canada and India. Both countries employ distinct income tax systems with varying rates, brackets, deductions, and exemptions. Consider your specific situation and preferences when choosing the tax regime that best suits you, and take advantage of various strategies to minimize your tax liability in either country.

Sources:

Country Economy , MoveHub , UK Tax Calculators , Tax Guru