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I'm a recent college grad so I am not that knowledgeable about money. So, please bear with me!

If I make a NRE account, I can get a 6% interest rate and I like that much more than the 1.5-2% interest rates here in the USA.

Also, I heard that I don't have to pay taxes on that interest for India.

Are there any tax implications for the profits made using NRE accounts?

For example, if I put $ 1,000 in my NRE account and get a $60 tax-free interest in the first year, do I have to pay any taxes in USA? I work in Seattle, WA.

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You heard correctly that interest paid on NRE accounts in India is not taxable income in India. In particular, there is no Tax Deducted at Source (TDS) by your bank and sent to the Indian Income Tax Authority on your behalf, and you don't need to file any tax returns in India. But, if you are a tax resident of the US (different from visa status), your world-wide income must be declared on your US income tax return, and taxed as appropriate. In addition, be aware that if you have more than $10k in nonUS assets, you need to declare this on Schedule B of your Form 1040 and also file Form FINCEN 114 with the US Treasury. Finally, be aware of the exchange rate risk. Some people invested in NRE accounts when the exchange rate was 1 US$ = 50 INR and when they brought the money back to the US, the rate was 1 US$ = 70 INR thereby negating all those great gains.

  • I'm a US citizen and I have no assets in any other country. My main question was that do I have to pay any US taxes on that $60 of generated interest income? – Raj Jun 25 at 20:57
  • You have to declare that interest income on your Form 1040 Schedule B, answer questions about whether your foreign accounts add up to more than $10K (and if so, file Form FINCEN 114 etc.) If taxes are required to be paid on that $60 income, going through Form 1040 will add that amount to what is due from you. If your tax withholding is more than the amount due, your refund will be reduced due to the additional tax on that $60. If the tax withholding was less, that extra tax will be included in what is still due from you. – Dilip Sarwate Jun 25 at 21:48

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