If as a Canadian resident, I hold an NRE account with an Indian bank and i transfer money earned in CAD to this account. The I earn interest in rupees and want to transfer back to CAD. The interest is tax free in India for NRE account, but when I convert them to CAD to use in Canada, do I pay tax to CRA? Assumption is that I already paid tax on the original CAD which i transferred to india


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Modified version of now-deleted comment

Chris Rea points out that Canada taxes world-wide income (as does the US). Thus, you should be reporting the interest earned each year on your annual tax return and paying taxes on that. When you convert these monies from INR to CAD for the purpose of bringing them back to Canada is irrelevant as far as the taxation of the interest is concerned, that is, you do not pay tax at the time of conversion, you pay the tax when the tax return for the year in which the interest was earned is filed. If you have not been reporting the interest earned in your NRE account on your tax returns, I recommend filing amended returns for the years that you missed. In the US, the laws regarding both the reporting of interest and dividend income earned abroad as well as the laws regarding reporting of assets held outside the US were honored more in the breach than in the observance by many, and especially so by persons of Indian origin. A couple of years ago, the IRS cracked down on this and the howls of outrage in the Indian community at having to comply with the laws were interesting to observe.

When you actually do convert the money in your NRE account from INR to CAD (whether original deposit or interest earned) you may have a loss due to the recent fall of the Indian Rupee, that is, if you close the account and convert all the money from INR to CAD, you may get back less than the original deposit plus all the earned interest on which you have been so diligently paying taxes. How that loss is handled on your tax return, or if it is regarded as a personal loss and thus non-deductible, is a separate issue.

  • Thanks. Just as a side note, if it is an NRO account as opposed to NRE, then Indian govt will deduct tax on interest income, so Canadian govt. will not deduct tax again, is it right?
    – Victor123
    Dec 21, 2013 at 4:58
  • 2
    You need to understand the difference between deduction and payment. Only the Indian Government/tax authority can demand that an Indian bank deduct tax from the interest it pays you and send the money directly to the government. That does not mean that the tax is necessarily due from you. You may well be entitled to get it all back as a refund if you file a tax return in India. The Canadian government will not deduct tax, but it may assess tax on the entire amount of interest, not what you get after GoI has gotten its cut. CRA may (or may not) give credit for tax paid to GoI. Dec 21, 2013 at 5:11
  • Thanks. But if the Indian bank is deducting tax, how come it is not due from me? I could not get much info on the web about deduction vs payment, can you shed some light?
    – Victor123
    Dec 21, 2013 at 11:09
  • You should ask a different question about the difference between deduction and liability. Dec 21, 2013 at 14:42

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