India–Canada tax treaty — rates, PE and MLI

The rates, at a glance

Every figure below is taken from the article named beside it, not from a rates table. Read the condition in the same row before you use the rate — in this treaty the condition is usually the whole answer.

Income	Rate	The condition attached to it	Article
Dividends	25 per cent of the gross amount in all other cases — Art. 10(2)(b). Note carefully that on this treaty the higher figure is the residual default, not a penalty rate, and 25 per cent is unusually high for an Indian treaty.	The beneficial owner must be a company which controls, directly or indirectly, at least 10 per cent of the voting power in the company paying the dividends. Three qualifiers, all load-bearing: it must be a…	Article 10, paragraph 2(a) and 2(b), as modified by MLI Art. 8(1)
Interest	15 per cent of the gross amount — Art. 11(2), conditional on the recipient being the beneficial owner. A single flat ceiling; there is no lower rate for bank or long-term lending.	Art. 11(3)(a)(i) — source-state exemption where the payer is the Government of that Contracting State, or of a political sub-division or local authority thereof. Note that this limb keys off the identity of…	Article 11, paragraph 2 for the rate; 3(a) and 3(b) for the exemptions
Royalties	Two rates, split by the kind of royalty rather than by royalty-versus-service. Art. 12(2). (b) 10 per cent for equipment royalties — payments for the use of or right to use any industrial, commercial or scientific equipment under Art. 12(3)(b) — and for fees for included services that are ancillary and subsidiary to the enjoyment of that equipment. (a) For all other royalties, i.e. The intellectual-property royalties in Art. 12(3)(a), the rate is time-tiered and must be quoted in full: during the first five taxable years for which the Agreement had effect, 15 per cent where the payer is the Government of that Contracting State, a political sub-division or a public sector company, and 20 per cent in all other cases; during the subsequent years, 15 per cent. The Agreement entered into force 6-5-1997, so the five-year window and its 20 per cent tier are spent and 15 per cent is the operative rate today — but the tier should be preserved on a reference page because it still governs any reopened year within that window.	Art. 12(3)(a) covers copyright of a literary, artistic or scientific work including cinematograph films or work on film tape or other means of reproduction for use in connection with radio or television…	Article 12, paragraph 2(a) and 2(b)
Fees for technical services	The same rate structure as royalties, and this is the direct answer to whether royalties and FTS differ here: they do not carry different rates. Art. 12 is a single combined article ('royalties and fees for technical services') and fees for included services simply follow the rate of the limb they attach to. Fees for included services generally take the Art. 12(2)(a) rate — 15 per cent today (20 per cent during the spent first-five-years window unless the payer was Government, a political sub-division or a public sector company, in which case 15 per cent). But fees for included services that are ancillary and subsidiary to the enjoyment of the equipment for which a payment is received under Art. 12(3)(b) take 10 per cent under Art. 12(2)(b). So the same technical service can be taxed at 15 or at 10 depending on whether the property it supports is intellectual property or equipment.	Make-available is present, in the classic Indo-US form. Art. 12(4) defines 'fees for included services' — note the treaty's own term is 'included services', not 'technical services', though the article heading…	Article 12, paragraph 4, with the exclusions at 5; rate at 2(a) and 2(b)

Status

In force	6 May 1997. The Agreement was signed at New Delhi on 11 January 1996 (in English, French and Hindi, each version equally authentic) and entered into force on 6-5-1997 after both States notified completion of their constitutional requirements under Art. 29. It covers taxes on income and on capital, not income alone.
Given effect by	Notification No. S.O. 28(E), dated 15-1-1998 — issued under s.90 of the Income-tax Act 1961 and s.44A of the Wealth-tax Act 1957. The wealth-tax reference follows from the Agreement extending to capital (Art. 22, Capital).
Modified by the MLI	Yes — a synthesised text exists. Prepared on the basis of India's MLI position deposited on ratification 25 June 2019 and Canada's deposited on ratification 29 August 2019.
Principal purpose test	Yes — MLI Art. 7(1), which the synthesised text records as applying 'and supersedes the provisions of this Agreement'. Note the wording is slightly wider here than in the Australia synthesised text: the benefit is denied in respect of 'an item of income or capital', reflecting that this Agreement covers capital as well as income. Full test: notwithstanding any provisions of the Agreement, a benefit shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the Agreement. The closing 'unless' limb is the taxpayer's escape and must be quoted with the rest. No MLI Art. 7(4) discretionary-relief paragraph appears.

Dividends

Rate	25 per cent of the gross amount in all other cases — Art. 10(2)(b). Note carefully that on this treaty the higher figure is the residual default, not a penalty rate, and 25 per cent is unusually high for an Indian treaty.
Lower rate on a qualifying holding	15 per cent of the gross amount — Art. 10(2)(a).
The holding that unlocks it	The beneficial owner must be a company which controls, directly or indirectly, at least 10 per cent of the voting power in the company paying the dividends. Three qualifiers, all load-bearing: it must be a company (not an individual, trust or partnership); the test is voting power, not capital or share count; and indirect control counts. The 10 per cent threshold is low, but the reward for clearing it is only a fall from 25 to 15 per cent, so the spread is wide and the incentive to establish the holding is correspondingly strong. Since the MLI took effect a further condition applies: MLI Art. 8(1) provides that Art. 10(2)(a) 'shall apply only if the ownership conditions described in those provisions are met throughout a 365 day period that includes the day of the payment of the dividends', with changes of ownership resulting directly from a corporate reorganisation such as a merger or divisive reorganisation of the shareholding or paying company disregarded in computing that period. So the 10 per cent voting control must be held for a full year straddling the payment date. A holding built up shortly before a dividend now gets 25 per cent, not 15.
Where this comes from	Article 10, paragraph 2(a) and 2(b), as modified by MLI Art. 8(1)

Art. 10(1) allows residence-State taxation. Art. 10(4) defines dividends as income from shares or other rights, not being debt-claims, participating in profits, plus income assimilated to income from shares by the law of the distributing company's State. Art. 10(3) preserves taxation of the company on the profits out of which dividends are paid. Art. 10(5) is the standard PE / fixed-base override. Art. 10(6) is a full extraterritorial-dividend and undistributed-profits prohibition: where a company resident in one State derives profits or income from the other, that other State may not tax dividends paid by the company (except to its own residents or on an effectively-connected holding) nor impose a tax on the company's undistributed profits, even if those dividends or profits consist wholly or partly of income arising there.

Interest

Rate	15 per cent of the gross amount — Art. 11(2), conditional on the recipient being the beneficial owner. A single flat ceiling; there is no lower rate for bank or long-term lending.
Exemptions	Art. 11(3)(a)(i) — source-state exemption where the payer is the Government of that Contracting State, or of a political sub-division or local authority thereof. Note that this limb keys off the identity of the payer, not the recipient. Art. 11(3)(a)(ii) — source-State exemption where the beneficial owner is the central bank of the other Contracting State (i.e. The Reserve Bank of India, or the Bank of Canada). Art. 11(3)(a)(iii) — source-State exemption where the interest is paid to an agency or instrumentality, including A financial institution, 'which may be agreed upon in letters exchanged between the competent authorities of the Contracting States'. This is an open-ended, extensible list rather than a closed one, but it is only as good as the exchange of letters: an institution not so agreed does not qualify however governmental it is. Whether any such letters have been exchanged, and which institutions they name, is not established by this record. Art. 11(3)(b) — two named export credit limbs, and these are exclusive-residence-taxation rules, not merely source exemptions. (i) Interest arising in India and paid to a resident of Canada is taxable only in canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured, by the export development corporation. (ii) Interest arising in Canada and paid to a resident of India is taxable only in India if paid in respect of a loan or credit made, guaranteed, insured or extended by the export-import bank of india (Exim Bank). The breadth of 'made, guaranteed or insured, or a credit extended, guaranteed or insured' is the point: the exemption is not confined to loans by the named body, it reaches ordinary commercial lending that the named body has merely guaranteed or insured. All of the above sit in Art. 11(3), which opens 'Notwithstanding the provisions of paragraph 2' — so they override the 15 per cent ceiling rather than sitting alongside it. Art. 11(5) disapplies paras 1 and 2 (but note, not on its face para 3) where the debt-claim is effectively connected with a PE or fixed base.
Where this comes from	Article 11, paragraph 2 for the rate; 3(a) and 3(b) for the exemptions

Art. 11(4) defines interest as income from debt-claims of every kind whether or not secured by mortgage, in particular income from Government securities and from bonds or debentures including premiums and prizes attaching to them, plus income assimilated to income from money lent by the source State's tax law; and expressly excludes income dealt with in Article 8 (shipping and air transport) or Article 10 (dividends). Art. 11(6) sourcing is the ordinary payer-residence rule with a PE / fixed-base carve-in; unlike the Australia treaty there is no 'outside both Contracting States' limb. Art. 11(7) is the special-relationship restriction on excessive interest.

Royalties

Rate	Two rates, split by the kind of royalty rather than by royalty-versus-service. Art. 12(2). (b) 10 per cent for equipment royalties — payments for the use of or right to use any industrial, commercial or scientific equipment under Art. 12(3)(b) — and for fees for included services that are ancillary and subsidiary to the enjoyment of that equipment. (a) For all other royalties, i.e. The intellectual-property royalties in Art. 12(3)(a), the rate is time-tiered and must be quoted in full: during the first five taxable years for which the Agreement had effect, 15 per cent where the payer is the Government of that Contracting State, a political sub-division or a public sector company, and 20 per cent in all other cases; during the subsequent years, 15 per cent. The Agreement entered into force 6-5-1997, so the five-year window and its 20 per cent tier are spent and 15 per cent is the operative rate today — but the tier should be preserved on a reference page because it still governs any reopened year within that window.
Where this comes from	Article 12, paragraph 2(a) and 2(b)

Rate

Two rates, split by the kind of royalty rather than by royalty-versus-service. Art. 12(2). (b) 10 per cent for equipment royalties — payments for the use of or right to use any industrial, commercial or scientific equipment under Art. 12(3)(b) — and for fees for included services that are ancillary and subsidiary to the enjoyment of that equipment. (a) For all other royalties, i.e. The intellectual-property royalties in Art. 12(3)(a), the rate is time-tiered and must be quoted in full: during the first five taxable years for which the Agreement had effect, 15 per cent where the payer is the Government of that Contracting State, a political sub-division or a public sector company, and 20 per cent in all other cases; during the subsequent years, 15 per cent. The Agreement entered into force 6-5-1997, so the five-year window and its 20 per cent tier are spent and 15 per cent is the operative rate today — but the tier should be preserved on a reference page because it still governs any reopened year within that window.

Where this comes from

Article 12, paragraph 2(a) and 2(b)

Art. 12(3)(a) covers copyright of a literary, artistic or scientific work including cinematograph films or work on film tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or information concerning industrial, commercial or scientific experience — and, a limb that is easy to miss, 'including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof'. A contingent, earn-out style consideration for the outright sale of ip is therefore a royalty taxable under Article 12, not a capital gain under Article 13. Art. 12(3)(b) equipment royalties carry their own carve-out: payments derived by an enterprise described in Art. 8(1) from activities described in Art. 8(3)(c) or Art. 8(4) — shipping and air transport container and pooling activities — are excluded. As with Australia, equipment royalties take the lower 10 per cent rate and ip royalties the higher 15 per cent, which is the reverse of the intuition many practitioners import from elsewhere. Art. 12(6) PE / fixed-base override; Art. 12(7) sourcing; Art. 12(8) special-relationship restriction.

Fees for technical services

Rate	The same rate structure as royalties, and this is the direct answer to whether royalties and FTS differ here: they do not carry different rates. Art. 12 is a single combined article ('royalties and fees for technical services') and fees for included services simply follow the rate of the limb they attach to. Fees for included services generally take the Art. 12(2)(a) rate — 15 per cent today (20 per cent during the spent first-five-years window unless the payer was Government, a political sub-division or a public sector company, in which case 15 per cent). But fees for included services that are ancillary and subsidiary to the enjoyment of the equipment for which a payment is received under Art. 12(3)(b) take 10 per cent under Art. 12(2)(b). So the same technical service can be taxed at 15 or at 10 depending on whether the property it supports is intellectual property or equipment.
Make-available requirement	Yes
Where this comes from	Article 12, paragraph 4, with the exclusions at 5; rate at 2(a) and 2(b)

Make-available is present, in the classic Indo-US form. Art. 12(4) defines 'fees for included services' — note the treaty's own term is 'included services', not 'technical services', though the article heading says the latter — as payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services either: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of A technical plan or technical design. Three limbs in total across (a) and (b), and they are disjunctive. Two consequences that decide cases: limb (a) has no make-available requirement at all, so a service ancillary to a royalty-bearing right is caught even though nothing is made available; and limb (b) has a second arm — development and transfer of a technical plan or technical design — which stands independently of make-available, so defeating make-available does not defeat the article. Art. 12(5) then excludes five categories from 'fees for included services' notwithstanding para 4, and these carve-outs are the qualifier that must never be truncated: (a) services ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property; (b) services ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (c) teaching in or by educational institutions; (d) services for the personal use of the individual or individuals making the payment; and (e) payments to an employee of the payer, or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14. Carve-out (e) again routes individual and firm-of-individuals consultants out of Article 12 and into Article 14. Textual defect worth recording: carve-out (a) as rendered reads 'other than a sale described in paragraph 5(a)' — a self-reference to the very sub-paragraph it appears in, which cannot be right. The corresponding clause in the Indo-US treaty refers to a sale described in paragraph 3(a), i.e. A contingent-consideration alienation of ip. Anyone relying on carve-out (a) should check the Gazette text before arguing it.

Capital gains on shares

Treatment	Full taxing rights in both states, and Article 13 is remarkable for how little it says. It has only two paragraphs. Para 1: gains from the alienation of ships or aircraft operated in international traffic by an enterprise of a Contracting State, and movable property pertaining to their operation, are taxable only in that State. Para 2: 'Gains from the alienation of any property, other than those referred to in paragraph 1 may be taxed in both Contracting States.' That is the whole of it. There is no shares limb, no immovable-property limb, no PE-property limb, no residual residence-State rule. Gains on shares of an Indian company derived by a Canadian resident are therefore taxable in India under domestic law without any treaty restriction of any kind, and vice versa. Double taxation is dealt with only downstream, by the credit mechanism in Article 23.
Grandfathering	None, and none was ever needed: this treaty has never conferred a residence-State exemption on share gains, so there is no Mauritius- or Singapore-style benefit to grandfather. There is no acquisition-date cut-off, no transition rate and no LOB condition anywhere in or around Article 13.
Conditions	Two things travel with Article 13 and both are outside the article itself. First, Protocol para 4: 'With reference to Article 13, it is understood that the term "alienation" includes a "transfer" within the meaning of Indian taxation laws.' That imports the very wide Indian statutory concept of transfer, so events that are not sales in the ordinary sense fall within Article 13. Second, since the MLI took effect, MLI Art. 9(4) applies to the Agreement as a free-standing rule: gains derived by a resident of one State from the alienation of shares or comparable interests, such as interests in a partnership or trust, may be taxed in the other State if, at any time during the 365 days preceding the alienation, those shares or interests derived more than 50 per cent of their value directly or indirectly from immovable property situated in that other State. Because Art. 13(2) already permits taxation in both States, MLI Art. 9(4) adds no new Indian taxing right in practice; its significance is that it is an addition to a treaty that had no immovable-property-rich rule at all, and it is drafted as paragraph 4 of MLI Art. 9 (the free-standing version) rather than as a modification of an existing paragraph.
Where this comes from	Article 13, paragraph 2, with Protocol para 4 and MLI Art. 9(4)

Permanent establishment

Construction or installation PE	Not expressed in months — 120 days in any twelve-month period, Art. 5(2)(k). The limb covers 'a building site or construction, installation or assembly project or supervisory activities in connection therewith', and the period is tested 'together with other such sites, projects or activities, if any'. Expressing this as 'four months' would be wrong: it is a day count in a rolling twelve-month window, and it is one of the shortest construction thresholds in the Indian treaty network. There is a separate and equally short limb at Art. 5(2)(j): an installation or structure used for the exploration or exploitation of natural resources, but only if so used for more than 120 days in any twelve-month period.
Service PE	90 days in any twelve-month period — Art. 5(2)(l) — but the limb has two alternative triggers and the second has no time threshold at all. The full text: the furnishing of services 'other than included services as defined in Article 12' within a Contracting State by an enterprise through employees or other personnel, and only if (i) activities of that nature continue within that State for a period or periods aggregating to more than 90 days within any twelve-month period; or (ii) the services are performed within that state for A related enterprise within the meaning of Article 9(1). Limb (ii) is the one that decides cases and it is routinely missed: services rendered to a related enterprise create a PE on day one, with no minimum presence whatever. Equally important is the opening exclusion — services that are 'included services' as defined in Article 12 are outside this limb altogether, because they are already taxed as fees for included services under Article 12. So the service PE limb catches only non-technical, non-make-available services, and the two provisions are meant to be mutually exclusive.
Agency PE	Yes — Art. 5(4), with three triggers, and it is more taxpayer-friendly than the Australian equivalent in two specific respects. A dependent person creates a PE if: (a) he has and habitually exercises authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those in Art. 5(3) which would not make a fixed place of business a PE; (b) he has no such authority but habitually maintains a stock of goods from which he regularly delivers on behalf of the enterprise, and — this extra condition has no Australian counterpart — 'some additional activities conducted in that State on behalf of the enterprise have contributed to the sale of the goods or merchandise'; or (c) he habitually secures orders in that State wholly or almost wholly for the enterprise. Art. 5(5) independent-agent relief is withdrawn only where both conditions are met: the agent's activities are devoted wholly or almost wholly on behalf of that enterprise and the transactions between agent and enterprise are not made under arm's length conditions. The conjunctive 'and' is decisive — an agent working exclusively for one principal keeps his independent status so long as the dealings are at arm's length. Contrast Australia, where exclusivity alone destroys independence.
Where this comes from	Article 5

Protocol para 3 is the qualifier that must travel with all three time-based limbs and is the single most overlooked provision in this treaty. Where an enterprise has a PE under Art. 5(2)(j), (k) or (l) and the time period referred to in that paragraph extends over two taxable years, a permanent establishment shall not be deemed to exist in a year in which the use, site, project or activity continues for periods aggregating less than 30 days in that taxable year. A PE will exist in the other taxable year, and the enterprise is taxable there under Article 7, but only on income arising during that other taxable year. A project straddling 31 March that crosses 120 days in aggregate can therefore produce a PE in one Indian previous year and none in the other, with the profits split accordingly. Art. 5(2) also includes (g) a warehouse in relation to a person providing storage facilities for others, (h) a farm or plantation, and (i) A store or premises used as A sales outlet — the last with no time qualification. Art. 5(3) preparatory-and-auxiliary exceptions are the ordinary five, with 'occasional delivery' added to storage and display in (a) and (b); unlike the Australia treaty there is no closing sentence disapplying the paragraph on mixed use, so a fixed place used for several listed purposes keeps its protection. Art. 5(6) is the standard subsidiary-is-not-a-PE rule. The MLI did not touch article 5 at all — no splitting-up-of-contracts rule, no anti-fragmentation rule, no narrowing of the specific-activity exemptions.

Anti-abuse: limitation of benefits, and the MLI

LOB	No limitation-of-benefits article, no subject-to-tax clause. Article 28 is headed 'Miscellaneous Rules' but contains nothing anti-abuse: Art. 28(1) is a preservation-of-domestic-relief clause ('the provisions of this Agreement shall not be construed to restrict in any manner any exclusion, exemption, deduction, credit or other allowance now or hereafter accorded by the laws of a Contracting State'), Art. 28(2) permits direct competent-authority communication, and Art. 28(3) is a gats Art. Xxii(3) carve-out requiring both States' consent before a tax dispute goes to the Council for Trade in Services. The only anti-avoidance provisions in the original instrument are the ordinary beneficial-ownership conditions in Arts. 10, 11 and 12, the associated-enterprises article, and Protocol para 5 preserving cfc-style taxation of amounts included in a resident's income in respect of a partnership, trust or controlled foreign affiliate. Because there was no LOB, the MLI PPT had nothing to replace and applies as the sole general anti-abuse rule, not alongside a pre-existing one.
PPT	Yes — MLI Art. 7(1), which the synthesised text records as applying 'and supersedes the provisions of this Agreement'. Note the wording is slightly wider here than in the Australia synthesised text: the benefit is denied in respect of 'an item of income or capital', reflecting that this Agreement covers capital as well as income. Full test: notwithstanding any provisions of the Agreement, a benefit shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the Agreement. The closing 'unless' limb is the taxpayer's escape and must be quoted with the rest. No MLI Art. 7(4) discretionary-relief paragraph appears.
Subject to tax	None. The nearest analogues are the MLI Art. 4(1) consequence for unresolved dual-resident non-individuals (no relief or exemption except as competent authorities agree) and Protocol para 5 (cfc saving clause).
Where this comes from	Art. 7(1) of the MLI as incorporated by the synthesised text, positioned after Article 28 of the Agreement. No article of the Agreement itself; Article 28 despite its 'Miscellaneous Rules' heading is not an anti-abuse provision.

MLI entry into force: 1 October 2019 for India, 1 December 2019 for Canada. Entry into effect, stated separately for each State and not symmetrical — this is worth recording precisely. In india: for taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to the tax occurs on or after 1 april 2020; for all other taxes, for taxable periods beginning on or after 1 april 2021. In canada: for taxes withheld at source, events on or after 1 january 2020; for all other taxes, taxable periods beginning on or after 1 june 2020. The Indian 'other taxes' date of 1 April 2021 is a year later than the Australian equivalent and is the date most likely to be got wrong. Six MLI provisions bite: (1) MLI Art. 6(1) preamble language on treaty-shopping; (2) MLI Art. 4(1) replaces Art. 4(3) for dual-resident non-individuals — the replacement is slightly softer than Australia's because it ends 'except to the extent and in such manner as may be agreed upon by the competent authorities', preserving a route to partial relief that the Australia text does not have; (3) MLI Art. 8(1) modifies Art. 10(2)(a) — see dividends, this is the change with the widest commercial reach; (4) MLI Art. 9(4) adds a real-property-rich share rule to Article 13; (5) MLI Art. 16 replaces the second sentence of Art. 25(1), extending the map presentation window from the treaty's two years to the MLI's three; (6) MLI Art. 7(1) PPT applies and supersedes. Notably absent: there is no MLI Art. 12, 13, 14 or 15 box anywhere in the document. Article 5 was left completely untouched by the MLI, so the 120-day construction limb, the 90-day service limb, the specific-activity exemptions in Art. 5(3) and the agency rules in Art. 5(4)-(5) all stand exactly as agreed in 1996, with no anti-fragmentation rule and no splitting-up-of-contracts rule. A practitioner who assumes the MLI tightened the Canadian PE article the way it tightened the Australian one will be wrong.

The protocols, in order

A treaty read without its protocols is a wrong answer.

None. The Introduction names only S.O. 28(E) dated 15-1-1998 and carries no 'as amended by' clause. There is no amending protocol in the sources used here.
The single protocol record is the original Protocol signed at New Delhi on the same day as the Agreement, 11 January 1996, expressed to be 'an integral part of the Agreement'. It was captured in full. It has five numbered paragraphs and two of them matter a great deal: para 3 (a 30-day de minimis on the time-based PE limbs — see pe.notes) and para 4 (with reference to Article 13, 'alienation' includes a 'transfer' within the meaning of Indian taxation laws, which imports the wide s.2(47) concept into the capital gains article). Para 1 equates 'fiscal year' with 'previous year' under the Income-tax Act 1961. Para 2 extends Art. 6(1) to income other than capital gains derived from the alienation of immovable property. Para 5 preserves each State's right to tax amounts included in a resident's income in respect of a partnership, trust or controlled foreign affiliate in which he has an interest — a cfc saving clause.

The words themselves

Quoted from the treaty as notified.

the furnishing of services other than included services as defined in Article 12, within a Contracting State by an enterprise through employees or other personnel, and only if : (i) activities of that nature continue within that State for a period or periods aggregating to more than 90 days within any twelve-month period; or (ii) the services are performed within that State for a related enterprise (within the meaning of paragraph 1 of Article 9).

Article 5, paragraph 2(l) of the treaty as notified.

make available technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design

Article 12, paragraph 4(b) of the treaty as notified.

Gains from the alienation of any property, other than those referred to in paragraph 1 may be taxed in both Contracting States.

Article 13, paragraph 2 of the treaty as notified.

a permanent establishment shall not be deemed to exist in a year, if any, in which the use, site, project or activity, as the case may be, continues for a period or periods aggregating less than 30 days in that taxable year

Article Protocol, paragraph 3 of the treaty as notified.

including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof

Article 12, paragraph 3(a) of the treaty as notified.

interest arising in India and paid to a resident of Canada shall be taxable only in Canada if it is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by the Export Development Corporation

Article 11, paragraph 3(b)(i) of the treaty as notified.

What to watch

The service PE limb at Art. 5(2)(l)(ii) creates a permanent establishment where services are performed for a related enterprise with no minimum number of days at all. Any intra-group secondment or support arrangement between an Indian and a Canadian group company is exposed from the first day of presence. The 90-day figure in limb (i) applies only to services for unrelated parties.
Article 5(2)(l) expressly excludes services that are 'included services as defined in Article 12'. Article 12 and the service PE limb are drafted to be mutually exclusive: if a service makes available technical knowledge, it is taxed under Article 12 at 15 per cent gross and does not create a PE under 5(2)(l); if it does not, it falls to 5(2)(l) and can create a PE taxed on net profits under Article 7. Which side of the line a contract falls on changes both the rate and the base.
The construction PE threshold is 120 days, not six months and not three months. It is among the shortest in the Indian network and it is a rolling twelve-month test aggregated across other sites and projects.
Protocol para 3 is the counterweight to those short thresholds and is almost always missed: for the 2(j), 2(k) and 2(l) limbs, a taxable year in which the activity lasts less than 30 days produces no PE for that year, and taxation in the other year reaches only income arising in that other year.
The residual dividend rate is 25 per cent — high, and higher than India's domestic withholding on dividends to non-residents has been at various times. Practitioners should check whether s.90(2) makes the domestic rate more beneficial before applying the treaty rate at all.
Since 1 April 2020 for Indian withholding, MLI Art. 8 requires the 10 per cent voting control for the 15 per cent dividend rate to have been held throughout a 365-day period including the payment date. Dividend planning that involves acquiring or topping up a holding shortly before a declaration no longer secures the lower rate.
India's MLI entry-into-effect dates on this treaty are 1 April 2020 for source withholding but 1 april 2021 for all other taxes — a year apart, and a year later on the 'other taxes' side than several comparable treaties. PPT challenges to non-withholding items therefore bite only from AY 2021-22 onwards.
The MLI left Article 5 entirely alone on this treaty. There is no anti-fragmentation rule and no contract-splitting rule for Canada, unlike Australia. Splitting a construction contract across closely related entities is not caught by any treaty provision here, though domestic GAAR and the PPT remain available to the revenue.
Article 13 gives both States unrestricted taxing rights over every gain except international shipping and aircraft. There is no treaty relief to claim on a share sale in either direction; the only remedy is a foreign tax credit under Article 23.
Protocol para 4 imports the Indian statutory meaning of 'transfer' into 'alienation' for Article 13 purposes, so indirect transfers and deemed transfers under Indian law are within the article rather than outside it.
Article 12(3)(a) taxes contingent consideration on the alienation of ip as a royalty. An ip sale structured with an earn-out or a productivity-linked instalment is caught by Article 12 at 15 per cent gross, not by Article 13.
Article 12(5)(a) as rendered contains a self-referential cross-reference ('other than a sale described in paragraph 5(a)') that cannot be correct. Verify against the Gazette text before relying on that carve-out.
The independent-agent test in Art. 5(5) is conjunctive — exclusivity and non-arm's-length dealings are both required before independence is lost. This is materially more favourable than the Australian treaty's test and should not be conflated with it.

What this page does not tell you. Whether any letters have been exchanged between the competent authorities under Art. 11(3)(a)(iii) designating agencies, instrumentalities or financial institutions whose interest is exempt, and which bodies they name, is not established. Without that, the third exemption limb is inert in practice. The apparent textual defect in Art. 12(5)(a) (the self-reference to paragraph 5(a)) has not been checked against the notified Gazette text of S.O. 28(E) dated 15-1-1998. Article 23 (elimination of double taxation), Article 24 (non-discrimination) and Article 22 (capital) were seen only in passing and are not summarised here. The Article 23 credit mechanism matters because Article 13 leaves every share gain doubly taxable, and any page on capital gains under this treaty should set it out. The Canadian tax-sparing position, if any, under Article 23 is not established. Whether the 20 per cent first-five-years royalty tier ran from 6 May 1997 by reference to Canadian taxation years or Indian previous years is not established; Art. 12(2)(a)(i) says 'the first five taxable years for which this Agreement has effect' and the two States' years begin on different dates.

The India–Canada tax treaty