NRE or NRO? What to do with your old savings account in India

Your old savings account has to change

A lot of us land in Canada with a regular savings account still open back home. It keeps working, the app still logs in, and it feels harmless to leave it be. It isn’t.

Under India’s foreign exchange law (FEMA), you become a non-resident for banking the moment you leave India to take up a job, study, or live abroad for an uncertain period. It’s about why you left, not how many days have passed. The Reserve Bank of India says that when a resident becomes a non-resident, their existing resident account should be designated as an NRO account.

Keep using it as a resident account and you’re breaking FEMA, which allows penalties of up to three times the amount involved. In practice, banks can also freeze accounts, and anything linked to them, until your details are updated. The fix is simple: tell your bank.

The 182-day rule you may have heard about is a different test, for income tax. We explain both in Are you an NRI?

Two accounts, two jobs

Think of them as two suitcases: one holds money you earned abroad, the other holds money you earned in India. Keep them separate.

Rule of thumb: money coming in from Canada goes to NRE. Money made in India stays in NRO.

What about the 30% TDS on NRO?

This is where most of the bad advice lives. People avoid NRO accounts because the bank deducts about 30% tax (TDS) on the interest. But TDS is only tax collected in advance. It isn’t your final bill.

Under the India–Canada tax treaty, India can tax the interest you earn at no more than 15%. If more was deducted, you can claim the difference back by filing an Indian income tax return.

How Canada taxes it

Once you’re a tax resident of Canada, the CRA taxes your income from everywhere, including interest from NRE and NRO accounts. To stop the same interest being fully taxed twice, Canada gives you a foreign tax credit for tax paid in India, up to the treaty’s 15%.

Here’s the example from our video, for someone whose Canadian tax rate on that income is 20%:

1. You earn ₹10,000 of interest in your NRO account. The bank deducts ₹3,000 (30%).
2. Canada’s tax on that ₹10,000 is ₹2,000 (20%).
3. Canada credits the 15% India is allowed to keep: ₹1,500. You pay the CRA the remaining ₹500.
4. You file an Indian tax return and get back the extra ₹1,500 India deducted.

Total tax: ₹1,500 to India plus ₹500 to Canada, which is ₹2,000, your Canadian rate. Taxed once, just split in two.

And NRE? It’s tax-free in India, but not in Canada. Because India took nothing, there’s no credit, and the CRA taxes the interest at your full rate. So interest from NRE and NRO ends up taxed at about the same total rate: yours in Canada.

The CRA wants all foreign income converted to Canadian dollars. Keep your bank’s interest certificate and your TDS certificate for both tax returns.

What to do this week

1. Check your status. Moved to Canada for work, study or to settle? You’re a non-resident for Indian banking.
2. Ask your bank to convert your resident savings account to NRO. Bring your passport, your Canadian visa, permit or PR card, and proof of your Canadian address, and ask how long it takes.
3. Open an NRE account if you send money home from Canada regularly and want to be able to move it back freely.
4. Keep the suitcases separate: NRE for money from abroad, NRO for money earned in India.
5. Keep the paperwork: interest certificates and TDS certificates for your Canadian and Indian returns.