I hold a Canadian visa on an Indian passport.
From India I will be arriving at Dublin on Ethiopian Airlines and after a 3 hrs 40 mins layover will catch WestJet Airlines to Canada from the same terminal at which I will have arrived at Dublin Airport. According to the airlines I will have to collect and recheck the baggage at Dublin Airport.
Do I need a Transit visa?
Collecting bagage is normally after immigration control, but before customs. Looking at the INIS site only if you stay airside you do not need a visa. Collecting bagage implies you have to go through immigration so you would need a short stay visa.
Text from the INIS site:
When you arrive in Ireland, you will remain 'airside' of the border while you wait for your connecting flight. You must apply for a short stay Visit Visa if you want to pass through border control, eg if you are transiting overnight and want to stay in a hotel. If you do not have a short stay Visit Visa, you will not be allowed to pass through border control.
I find it odd that you wil have to claim your bagage at Dublin, must be a reason for that. This may be true if you booked this journey as two separate journeys. In that cases they can not check you through.
The other answers are all good, I am adding my own to add another caveat worth keeping in mind.
You mention that the airlines are requiring you to collect and recheck your baggage - this indicates that most probably you are travelling on a multiple ticket itinerary.
Both Paul Palmpje's and JonathanReez's answers cover the fact that you need a transit visa in order to collect the luggage, as the luggage collection point is after immigration control.
A more pressing issue is that because you are not booked on a through-itinerary, the airline carrying you to Ireland will almost certainly not board you due to a lack of a visa and a lack of an ongoing-travel itinerary with them. They will treat you as if Ireland is your final destination, because to them it is.
Normally you would be exempted thanks to your Canadian visa, however you mention that:
According to the airlines I will have to collect and recheck the baggage at Dublin Airport.
This means you will indeed need a transit visa as the luggage collection takes place after passport control.
My experience. Indian citizen with a U.S. visa.
Flying through Chicago to Dublin and connection from Dublin to Europe (within two hours in afternoon) - transit visa not required.
Flying back from Europe to Dublin. Connecting flight to Chicago is after 20 hrs. Arrived in Dublin airport at 4 PM. Cannot stay on the airport in the night as the airport is closed. Have to pass through immigration. Transit visa is required but do not have it. So, immigration office scolds and stamps an entry permit and warns not to repeat the case. Once the passport is stamped, left the airport, stayed at a hotel in the city centre, returned back to airport, passed through immigration and boarded the flight.
Had asked both the airline (Aer Lingus) and the Irish Consultate in Chicago before boarding, if I will need a transit visa on return. But no clear response from both of them.
Summary - You need a transit visa to travel through Dublin if you land in Dublin on Day 1 evening and your connecting flight is on Day 2 morning. You cannot stay at the airport (not even airside). The airline doesn't stop you from boarding the flight to Dublin if you don't have a transit visa, but once in Dublin you need to have it.
As stated in Timatic, the database used by airlines:
TWOV (Transit Without Visa): - Holders of onward tickets for a max. transit time of 24 hours. Not applicable to nationals of Afghanistan, Albania, Congo (Dem. Rep.), Cuba, Eritrea, Ethiopia, Georgia, Ghana, Iran, Iraq, Lebanon, Moldova (Rep.), Nigeria, Somalia, Sri Lanka, Ukraine and Zimbabwe.
So far it looks good, but the defintion of TWOV is:
Passing through an international transit area of the airport in order to board a connecting (or to proceed by the same) flight, without entering the country (i.e. clearing immigration).
So unfortunately, you do need a transit visa
