FCNR(B) Deposits Explained: How NRIs Hold Foreign-Currency Term Deposits Without Rupee Exchange-Rate Risk

An NRI who parks savings in an ordinary rupee fixed deposit carries a risk that has nothing to do with the interest rate: if the rupee weakens against the currency in which they earn and spend, the real value of the deposit falls even as the balance grows. The Foreign Currency (Non-Resident) Accounts (Banks) Scheme, universally known as FCNR(B), exists to remove exactly that risk. Governed by the Reserve Bank of India under the Foreign Exchange Management Act, 1999, it lets a non-resident hold a term deposit denominated in a permitted foreign currency, so that both principal and interest stay measured in that currency and are fully repatriable. This guide walks through the statutory basis, the tax position in India and abroad, and the repatriation mechanics, with every figure traced to a primary source.

If you want to model returns before reading further, the FCNR deposit calculator and the NRI tax calculator let you test currency and tenure combinations against your own numbers.

FEMA / DTAA Position

FCNR(B) is a creature of exchange-control law, not tax law. The Foreign Exchange Management Act, 1999 came into force on 1 June 2000 and, under Section 6 governing capital-account transactions, a non-resident may not hold Indian financial assets except as specifically permitted by the RBI. Chapter 14 of the RBI's FEMA framework, "Foreign Currency Accounts in India" (rbi.org.in), carves out that permission: it authorises banks to accept FCNR(B) deposits as term deposits only, with tenures ranging from 1 year to 5 years. There is no FCNR savings or current account; the scheme is designed for money the depositor can lock away.

The defining feature is the currency of denomination. An FCNR(B) deposit is held in a freely convertible foreign currency, commonly the US dollar, pound sterling, euro, Japanese yen, Canadian dollar or Australian dollar, and the bank bears no obligation to convert it into rupees at any point in its life. The rupee's movement against that currency, whether the exchange rate is 83 or 90 to the dollar, is irrelevant to what the depositor eventually withdraws. This is what separates FCNR(B) from an NRE fixed deposit, which is held in rupees and therefore exposed to depreciation the moment funds are converted on the way in.

Eligibility flows from residential status as defined under FEMA, which is distinct from the tax definition of residence. Only a person who is a non-resident under FEMA, an NRI or a Person of Indian Origin, may open the account; a returning resident cannot open a fresh FCNR(B) deposit, though an existing one may run to maturity. Because the deposit is a foreign-currency asset held outside the resident's Liberalised Remittance Scheme, the LRS ceiling of USD 250,000 per financial year that binds residents does not restrict the size of an NRI's inward FCNR(B) funding. Fresh money must arrive through banking channels from abroad or by transfer from another NRE or FCNR(B) account.

The Double Taxation Avoidance Agreement enters the picture only for the interest the deposit earns, and only in the depositor's country of residence, because, as the next section explains, India itself does not tax that interest. Where a country of residence does tax the interest, the relevant treaty caps the rate India could levy at source, and the DTAA benefit calculator applies those ceilings.

Tax Treatment in India

The single most important tax fact about FCNR(B) is that, for a depositor who is a non-resident, the interest is exempt from Indian income tax. The exemption sits in Section 10(15)(fa) of the Income-tax Act, 1961 (indiacode.nic.in), which exempts interest payable by a scheduled bank to a non-resident, or to a person not ordinarily resident, on deposits in foreign currency where the RBI has approved the scheme. Because the income is exempt, there is no Tax Deducted at Source: the bank credits interest gross, and there is no Indian withholding to reclaim.

That exemption is what makes FCNR(B) and NRE deposits so different from an NRO account in tax terms. Interest on an NRO deposit is fully taxable in India and is subject to withholding under Section 195 of the Income-tax Act, 1961 at the rates in force, which the depositor then sets against treaty relief. For NRI investment income more broadly, Chapter XII-A of the Act offers a separate route, Section 115E, which levies a flat 20% on specified investment income and long-term capital gains from foreign-exchange assets, as our explainer on the flat 20% tax under Section 115E sets out. FCNR(B) interest, being exempt outright under Section 10(15)(fa), never reaches these charging provisions at all.

The exemption is tied to status, not to the account label, and it ends when status changes. Once the depositor returns to India and becomes a resident, the shelter of Section 10(15)(fa) falls away. In practice there is a bridge: many returning NRIs qualify as Resident but Not Ordinarily Resident (RNOR) for two to three financial years under Section 6 of the Income-tax Act, and during that window interest on an FCNR(B) deposit that continues to maturity generally remains outside Indian tax. The precise RNOR window turns on the day-count tests of residential status, so returning depositors should map their arrival date against those tests before assuming the exemption still holds.

Because FCNR(B) interest carries no TDS for a non-resident, none of the surcharge and cess arithmetic that applies to taxable NRI income comes into play on this account. For context, where surcharge does apply to an NRI's taxable Indian income, the rate-config the platform maintains records a surcharge of 10% between Rs 50 lakh and Rs 1 crore of income, rising through 15% and 25%, with the highest surcharge in the new regime capped at 25% rather than the 37% that once applied. None of that touches an exempt FCNR(B) return, which is one of the scheme's quiet advantages.

Tax Treatment Abroad

Zero tax in India does not mean zero tax overall. A country that taxes its residents on worldwide income will bring FCNR(B) interest into charge, and here the foreign-tax-credit mechanism works in reverse from the way NRIs usually expect. A foreign tax credit relieves double taxation by crediting tax paid in one country against tax due in the other, but a credit can only be claimed for tax actually paid. Because India levies nothing on FCNR(B) interest, there is no Indian tax to credit, and the full charge falls in the country of residence.

For a US person, the India-United States DTAA has been in force since 12 September 1991, and Article 24 provides the foreign-tax-credit machinery. The treaty caps Indian tax on interest at 15%, but that ceiling is academic for FCNR(B) interest, on which India charges 0% in the first place; the US taxes the interest as ordinary income with no offsetting Indian credit. US persons should also note the reporting overlay: an FCNR account is a foreign financial account that must be disclosed on FinCEN Form 114 (the FBAR) and, above the applicable thresholds, on IRS Form 8938, regardless of the fact that the interest is India-exempt.

The picture in the United Kingdom is similar in structure. The India-UK DTAA, effective from 26 October 1993, caps Indian tax on interest at 15%, but again India applies 0% to FCNR(B) interest, so a UK-resident depositor taxed on the arising basis declares the gross foreign interest to HMRC with no Indian credit to set against it. The choice between the arising basis and the remittance basis, where still available, materially changes when that interest is taxed.

The Gulf changes the calculus entirely. The India-UAE DTAA has applied since 22 September 1993 and caps Indian tax on interest at 12.5%, but the more decisive fact for an FCNR(B) depositor is that the UAE levies no personal income tax on individuals. Interest that India exempts and the UAE does not tax can therefore be genuinely untaxed in both jurisdictions, which is a large part of why the scheme is so heavily used by NRIs in the Gulf. The comparison below sets out the treaty interest ceilings alongside the long-term capital-gains position, and it is worth stressing that no DTAA treats capital gains as exempt: India retains a taxing right on long-term gains at 12.5%.

Claiming any treaty relief on other India-source income requires a Tax Residency Certificate from the country of residence, and for the UAE the certificate must be backed by proof of a UAE establishment. FCNR(B) interest, being India-exempt, needs no TRC to escape Indian tax, but the certificate remains essential for other income streams a depositor may hold.

Repatriation Mechanics

Full repatriability is written into the scheme, and it is where FCNR(B) most clearly outperforms an NRO account. Both the principal and the interest of an FCNR(B) deposit may be remitted abroad without limit and without the RBI's prior approval, because the funds are already held in foreign currency and originated from abroad. There is no annual cap. This is the sharpest contrast with the NRO route, where repatriation is limited to USD 1 million per financial year, subject to a chartered accountant's certification, as our guide to the USD 1 million NRO repatriation scheme explains. An NRI who wants unfettered access to their money abroad has a strong reason to prefer FCNR(B) over NRO for new savings.

The deposit can also be borrowed against rather than broken. Under Chapter 14 of the RBI's FEMA framework, banks may grant loans and overdrafts in India to the depositor against the security of an FCNR(B) deposit, and foreign-currency loans abroad against the same security are also permitted within the scheme's terms. This lets a depositor raise liquidity without triggering premature withdrawal, which matters because breaking a foreign-currency term deposit before it has run 1 year typically means no interest is paid at all. Anyone weighing a break should model the cost with the repatriation calculator first.

Redesignation on a change of status follows a defined path. When the depositor returns to India for good, an existing FCNR(B) deposit is allowed to continue in foreign currency until its original maturity date, at up to 5 years from opening, after which the balance is transferred not to an ordinary rupee account but to a Resident Foreign Currency (RFC) account. The RFC account, also covered by Chapter 14 alongside EEFC accounts, lets a returning resident keep the money in foreign currency, preserving the exchange-rate protection that was the point of the FCNR(B) deposit in the first place. The mechanics of moving between account types are set out in our comparison of NRE, NRO and FCNR accounts.

One macro point frames all of this. FCNR(B) rates move with global currency interest rates rather than with India's domestic policy rate, which the RBI Monetary Policy Committee held at 5.25% on 5 August 2026. A dollar FCNR(B) deposit is priced off dollar benchmarks, so an NRI comparing an FCNR(B) yield against a rupee NRE FD is comparing two different interest-rate worlds, and the exchange-rate protection of the former is the compensation for what is usually a lower headline rate.

FAQ

Is FCNR(B) interest really tax-free in India?

Yes, for a depositor who is a non-resident. Section 10(15)(fa) of the Income-tax Act, 1961 exempts interest paid by a scheduled bank on RBI-approved foreign-currency deposits held by a non-resident, so the interest is credited gross with no TDS. The exemption ends when the depositor becomes a resident, subject to a Resident but Not Ordinarily Resident bridge of two to three years under Section 6.

Which currencies can an FCNR(B) deposit be held in?

The scheme allows any freely convertible foreign currency the bank chooses to offer. In practice the common six are the US dollar, pound sterling, euro, Japanese yen, Canadian dollar and Australian dollar. The deposit is a term deposit only, with a tenure between 1 year and 5 years under Chapter 14 of the RBI's FEMA framework.

How is FCNR(B) different from an NRE fixed deposit?

Both exempt interest from Indian tax for a non-resident, but an NRE FD is held in rupees and carries full exchange-rate risk, while an FCNR(B) deposit is held in foreign currency and carries none. If the rupee falls from 83 to 90 against the dollar, an NRE FD loses dollar value while an FCNR(B) deposit does not.

Can I repatriate the full amount abroad?

Yes. Both principal and interest are fully repatriable without any annual limit and without RBI approval. This differs from an NRO account, where repatriation is capped at USD 1 million per financial year and requires a chartered accountant's certificate under FEMA.

Will my country of residence tax the interest?

Probably, if it taxes worldwide income. The US (DTAA in force since 12 September 1991) and the UK (since 26 October 1993) tax the interest with no Indian credit to offset, because India charges nothing. The UAE (DTAA since 22 September 1993) levies no personal income tax, so the interest can be untaxed in both countries.

What happens to my FCNR(B) deposit when I return to India?

It may continue in foreign currency until its original maturity, up to 5 years from opening. On maturity the balance moves to a Resident Foreign Currency (RFC) account rather than a rupee account, keeping the money in foreign currency. Interest generally stays tax-exempt during any Resident but Not Ordinarily Resident period.

Can I take a loan against my FCNR(B) deposit?

Yes. Under Chapter 14 of the RBI's FEMA framework, banks may grant rupee loans and overdrafts in India, and foreign-currency loans abroad, against the security of an FCNR(B) deposit. Borrowing avoids breaking the deposit early, which for a term under 1 year usually means no interest is paid.