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NRE and NRO interest when you are a Canadian tax resident

You have been told NRE interest is tax-free, but that is an Indian rule, and it does not hold on your Canadian return.

You keep money in Indian NRE and NRO accounts, and you understand NRE interest to be tax-free. In India it is. But you are a tax resident of Canada, which taxes worldwide income, so the interest India chooses not to tax is fully taxable in Canada, and because India took nothing, there is nothing to credit against the Canadian bill. On top of that, your Indian deposits may trigger a foreign-property reporting form. This is one of the most expensive misunderstandings for Indians in Canada, and it is worth getting straight.
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Last reviewed: 26 July 20266 min readReviewed by Preetesh Maloo, CA

The short answer

NRE interest is exempt in India under Section 10(4), but that is an Indian rule. A Canadian resident is taxed on worldwide income, so both NRE and NRO interest are taxable in Canada. On NRO interest, where India charges tax, Canada gives a foreign tax credit, and the treaty caps the India tax at 15% if you file a tax residency certificate and Form 10F. On NRE interest, India charges nothing, so there is no credit and you bear the full Canadian tax. So the tax-free NRE account is tax-free only in India. And if your Indian deposits cost more than CAD 100,000, you must report them on Form T1135.

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Full guide: How much TDS is deducted on an NRO account, and how to lower it

Related situations

Tax-free NRE stops at the Canadian border

Interest on an NRE account is exempt in India under Section 10(4) while you hold non-resident status, and the Indian bank deducts no tax. Inside India that is accurate, and it is where the tax-free reputation comes from.

Canada does not recognise it. A Canadian resident is taxed on worldwide income, so the NRE interest is fully taxable in Canada at your rates, reported in Canadian dollars. And because India levied no tax on it, there is no foreign tax to credit against the Canadian charge, unlike taxed income, which brings a credit. So the tax-free NRE interest is taxed in full in Canada with nothing to soften it. People holding large NRE deposits in the belief the interest is genuinely tax-free are regularly and expensively caught out.

NRO interest, and the reporting form

NRO interest is taxable in India. The bank deducts TDS under Section 195 at about 31% by default, but the India-Canada treaty caps the tax on interest at 15%, which you get by filing a tax residency certificate and Form 10F with the bank before the interest is paid. Canada then taxes the NRO interest too, and gives a foreign tax credit for the India tax, up to that 15%.

The 15% matters for a Canadian reason: the credit for this kind of foreign income is itself limited to 15% of the income, so if the bank over-deducted at 31% because you had not filed Form 10F, Canada credits only 15% and the extra has to be reclaimed from India, not from Canada. Filing Form 10F up front keeps the two aligned. Separately, if the cost of your NRE and NRO deposits together is more than CAD 100,000, you must report them each year on Form T1135, the Foreign Income Verification Statement, whose penalties are steep.

What's involved

What the CA actually does

  1. 1

    We flag the NRE reality

    We make sure your NRE interest is reported on the Canadian side, since it is tax-free only in India, so it is not missed and later penalised.

  2. 2

    We cap the NRO TDS at 15%

    We file your tax residency certificate and Form 10F so the bank deducts 15% on NRO interest, matching what Canada will credit.

  3. 3

    We reclaim any over-deduction

    Where the bank took the full rate, we file the Indian return to recover the excess above 15%, which Canada will not credit.

  4. 4

    We handle the T1135

    We check whether your Indian deposits trigger T1135 reporting, so the foreign-property form is filed correctly.

What to have ready

Documents you'll typically need

  • Your NRE and NRO interest for the year
  • Any TDS the bank deducted on NRO interest
  • The cost of the deposits, for the T1135 test
  • Your PAN, TRC and Canadian tax details

References on this page

  • NRE interest is exempt in India (Section 10(4)) only while you are non-resident; India deducts no TDS
  • Canada taxes worldwide income, so NRE interest is fully taxable there with no credit (no India tax was paid)
  • NRO interest: TDS under Section 195, capped at the treaty rate of 15% with a TRC and Form 10F, which Canada credits
  • Form T1135 is required if the Indian deposits' cost is more than CAD 100,000

Frequently asked questions

Common questions

Yes. NRE interest is exempt in India, but that is an Indian rule. As a Canadian resident taxed on worldwide income, you include it in full on your Canadian return, and because India took no tax there is no credit, so you pay the full Canadian tax on it.

It is taxable in India, with TDS under Section 195 that the treaty caps at 15% if you file a tax residency certificate and Form 10F. Canada taxes it too but gives a foreign tax credit for the 15%, so most of the double tax is relieved.

Only up to 15%. Canada's credit for this foreign income is limited to 15%, so the excess must be reclaimed from India by filing an Indian return, not credited by Canada. Filing Form 10F up front avoids the over-deduction.

Yes, if their total cost is more than CAD 100,000, on Form T1135 each year. The penalties for missing it are steep, so it is worth confirming whether you cross the threshold.

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

NRO account: what it costs and what it caps

Right now: Interest taxed at 30% plus surcharge and cess; repatriation capped at USD 1 million a financial year

Where it works differently

A TRC and Form 10F (Form 41 from 1 Apr 2026) are furnished
The treaty rate applies to the interest, commonly 10-15% under Article 11 instead of 30% plus surcharge.
s.90(2). This is the single largest recurring recovery item for most NRIs.
Remitting out
Form 15CA is needed, plus Form 15CB from a CA where the remittance is chargeable and above Rs 5 lakh in the year.
Rule 37BB.
Joint holders
The USD 1 million ceiling is per person per financial year, so joint holders each have their own.
FEMA 13(R).

Commonly got wrong

  • NRO interest is taxed at 30%. Incomplete. Surcharge and 4% cess sit on top, and a treaty can cut it to 10-15%.30% plus surcharge and cess by default, but 10-15% under most treaties if you hold a TRC and file Form 10F.

Canadian T1135 threshold

Right now: CAD 100,000 total COST of specified foreign property

Where it works differently

The Indian property is personal-use
Excluded from specified foreign property. A rented-out flat is NOT excluded.
Definition in s.233.3.
The test is applied
It is COST, not market value.
Statutory wording.

Commonly got wrong

  • T1135 uses market value. It uses cost.T1135 is triggered by the COST of specified foreign property exceeding CAD 100,000, not by its market value.

Related

If this matched your situation, these go further

Indian rental income when you are a Canadian tax residentHolding Indian mutual funds as a Canadian tax residentProving the tax you paid in India, to claim a foreign tax credit abroadNRI ITR filing (we file for you)DTAA TDS recoveryRepatriation unblock (15CA / 15CB)Form 10F generatorDTAA rate lookup

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