FCNR(B) Deposits: Foreign-Currency Fixed Deposits in India That Shield NRIs From Rupee Depreciation

Of all the accounts open to a non-resident Indian, the Foreign Currency Non-Resident (Bank) deposit — FCNR(B) — is the only mainstream Indian bank instrument that lets you hold a fixed deposit in your salary currency, earn interest that is exempt from Indian income tax while you remain non-resident, and repatriate every rupee-equivalent dollar of principal and interest without a ceiling. Because the deposit is denominated in a freely convertible foreign currency rather than in rupees, a fall in the rupee does not erode what you get back. This guide sets out the FEMA basis, the Indian and foreign tax treatment, and the repatriation mechanics, with every position tied to the governing Master Direction or statute.

FCNR(B) accounts are governed by the RBI's FED Master Direction No. 14/2015-16 on Deposits and Accounts and by the Foreign Exchange Management (Deposit) Regulations, 2016, notified as FEMA 5(R). They are term deposits only — no savings or current variant exists — with a tenor of 1 to 5 years, held in permitted currencies such as USD, GBP, EUR, JPY, CAD and AUD.

FEMA / DTAA Position

Under Section 6 of the Foreign Exchange Management Act, 1999, a non-resident needs RBI permission to hold Indian assets unless the transaction is specifically permitted; the FCNR(B) scheme is one such permitted class, opened to NRIs and Persons of Indian Origin under FEMA 5(R) of 2016. An account may be opened only by remitting funds from abroad or by transfer from an existing NRE or FCNR(B) account, so the money entering the deposit is already foreign-sourced and freely repatriable capital.

The defining FEMA feature, set out in FED Master Direction No. 14/2015-16, is that the deposit is maintained in the foreign currency itself, not converted to rupees. If you place USD 50,000 for three years, both the principal and the contracted interest accrue and mature in US dollars, so the rupee's movement against the dollar over those three years is irrelevant to your dollar return. That currency-risk elimination is the single reason most NRIs prefer FCNR(B) to a rupee NRE fixed deposit during periods of rupee weakness; you can model the two side by side with the FCNR Deposit Calculator and an NRE FD Calculator.

Interest rates are not left to the bank's discretion. RBI's Master Direction on Interest Rate on Deposits caps FCNR(B) rates at a spread over the applicable Alternative Reference Rate (ARR) — for example, SOFR for US dollar deposits — for the relevant currency and maturity bucket, replacing the LIBOR benchmark that was withdrawn globally by 30 June 2023. The ceiling is currency-specific and tenor-specific, so a five-year USD deposit and a one-year GBP deposit carry different maximum rates, and the ceilings are revised by RBI from time to time.

Double Taxation Avoidance Agreements do not change the Indian tax position on FCNR(B) interest, because India already exempts that interest domestically (see the next section). Where a DTAA matters for NRIs is on other India-sourced income: for interest that is not exempt, the treaty withholding rate under Section 195 is applied only if it is lower than the domestic rate. Note that no DTAA treats capital gains on Indian assets as fully exempt for the resident of the other state — India retains a taxing right, and long-term capital gains are charged at 12.5% under the post-Budget-2024 regime.

Tax Treatment in India

Interest earned on an FCNR(B) deposit is exempt from Indian income tax for as long as the account holder qualifies as a non-resident, under Section 10(15)(iv)(fa) of the Income-tax Act, 1961, which exempts interest paid by a scheduled bank to a non-resident, or to a not-ordinarily-resident person, on RBI-approved foreign-currency deposits. Because the interest is exempt, no tax is payable, no surcharge applies, and there is nothing to include in an Indian return on account of the deposit while your status is non-resident.

It follows that Tax Deducted at Source does not bite either. Section 195 of the Income-tax Act requires withholding on sums chargeable to tax paid to a non-resident, but FCNR(B) interest is not chargeable to tax under Section 10(15)(iv)(fa), so the bank deducts nil TDS on it. This is a genuine exemption, not merely a treaty rate reduction, so you do not need to file for a lower-deduction certificate for this income. You can read the mechanics of withholding on other NRI income in our glossary entry on TDS.

The exemption is tied to residential status, and this is where returning NRIs must be careful. The moment you become a resident and ordinarily resident under the Income-tax Act, the Section 10(15)(iv)(fa) exemption falls away and future interest becomes taxable in India. In practice the exemption typically continues through the Resident-but-Not-Ordinarily-Resident (RNOR) years, and on permanent return the deposit is redesignated to a Resident Foreign Currency (RFC) account rather than closed, allowing you to run it to its 1-to-5-year maturity. Estimate the year your status flips with the NRI Tax Status Calculator.

The table below contrasts FCNR(B) with the two rupee accounts most NRIs also hold, all under FEMA 5(R):

Tax Treatment Abroad

Indian exemption is only half the picture. Most countries tax their residents on worldwide income, so FCNR(B) interest that escapes Indian tax under Section 10(15)(iv)(fa) is usually taxable in your country of residence. Critically, because India levies no tax on it, there is no Indian tax to surrender as a foreign tax credit — the interest is taxed once, abroad, at your local rate, rather than twice.

For a US-resident NRI, FCNR(B) interest is ordinary income reportable on the US return, and the India-US DTAA (in force since 12 September 1991) allows a foreign tax credit in the country of residence under Article 24; but since the Indian tax on this interest is zero, there is no credit to claim and the full US rate applies. The treaty's 15% interest withholding rate under the India-US DTAA would only ever be relevant to taxable Indian interest, not to exempt FCNR(B) interest. UK-resident NRIs face the same logic: the India-UK DTAA (effective 26 October 1993) caps Indian interest withholding at 15%, but exempt FCNR(B) interest carries no Indian tax, so it is simply UK-taxable income, subject to any remittance-basis election a non-domiciled UK resident may make.

UAE-resident NRIs are the clear winners: the UAE levies no personal income tax on individuals, and India exempts the interest under Section 10(15)(iv)(fa), so FCNR(B) interest is effectively untaxed on both sides. The India-UAE DTAA (effective 22 September 1993) caps Indian interest withholding at 12.5% and requires a Tax Residency Certificate with UAE-establishment proof to invoke, but again the treaty rate is moot where the Indian charge is already nil. The table sets out the position by residence country:

The practical takeaway is to plan around your residence country's disclosure rules. US persons must report the FCNR(B) balance on FBAR (FinCEN Form 114) once aggregate foreign accounts exceed USD 10,000 at any point in the year, and potentially on Form 8938; UK residents on the arising or remittance basis must declare the interest on their Self Assessment return. Failing to declare abroad income that India exempted is a residence-country compliance failure, not an Indian one.

Repatriation Mechanics

Repatriation is where FCNR(B) is at its strongest. Under FEMA 5(R), 2016, both the principal and the interest of an FCNR(B) deposit are fully and freely repatriable with no monetary ceiling, and because the funds are already in foreign currency, no conversion or repatriation limit applies at maturity. This is a sharper position than the NRO account, where repatriation of balances is capped at USD 1 million per financial year and requires Forms 15CA and 15CB certification of tax compliance.

The permitted funding routes preserve this clean repatriability. An FCNR(B) can be funded by inward remittance from abroad, by transfer from another FCNR(B), or by transfer from an NRE account, all of which are repatriable sources under FED Master Direction No. 14/2015-16; funding from a (taxable, partly non-repatriable) NRO account is not permitted for FCNR(B), which keeps the deposit's foreign-currency character intact. Compare the repatriation ceilings across account types with the Repatriation Limit Calculator.

On maturity you have three clean options under FEMA 5(R): remit the maturity proceeds abroad in the same foreign currency without any RBI reference; convert to rupees and credit an NRO or NRE account; or renew the deposit for a fresh 1-to-5-year term. Premature closure is permitted, but banks pay no interest if an FCNR(B) is withdrawn before completing 12 months, per the RBI deposit rules, so the 1-year floor is a real economic threshold, not merely a documentation one.

One currency-conversion nuance is worth flagging with a number. If you convert FCNR(B) proceeds into rupees and later wish to reconvert and repatriate, you re-enter the general repatriation framework; keeping funds in the foreign-currency FCNR(B) or an NRE account avoids the USD 1 million per financial year NRO cap entirely. For readers weighing which account to route funds through, our glossary entries on NRE and NRO accounts set out the distinction, and the DTAA glossary explains how treaty relief interacts with domestic exemptions.

FAQ

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

Yes, for as long as you are a non-resident (or RNOR). Section 10(15)(iv)(fa) of the Income-tax Act, 1961 exempts interest paid by a scheduled bank to a non-resident on RBI-approved foreign-currency deposits, and because the income is exempt the bank deducts nil TDS under Section 195. The exemption ends once you become resident and ordinarily resident.

What currencies can I hold and for how long?

FCNR(B) deposits are held in freely convertible currencies including USD, GBP, EUR, JPY, CAD and AUD, per FED Master Direction No. 14/2015-16, and are term deposits with a tenor of 1 to 5 years. There is no savings-account variant, and no tenor shorter than 1 year or longer than 5 years is permitted.

How does FCNR(B) protect me from rupee depreciation?

The deposit is held and repaid in the foreign currency itself, not in rupees. If you deposit USD 50,000 for five years, you get back USD 50,000 plus contracted dollar interest at maturity regardless of where the USD/INR rate moves, so unlike an NRE rupee FD the deposit carries no rupee-depreciation risk. The trade-off is that FCNR(B) rates, capped by RBI against the currency's Alternative Reference Rate, are typically lower than NRE rupee FD rates.

Can I repatriate the full amount, or is there a cap like NRO?

The full principal and interest are freely repatriable with no ceiling under FEMA 5(R), 2016. This differs from an NRO account, where repatriation is limited to USD 1 million per financial year and needs Forms 15CA/15CB.

Is the interest taxed in my country of residence?

Usually yes. Most countries, including the US (DTAA in force 12 September 1991) and the UK (in force 26 October 1993), tax worldwide income, so FCNR(B) interest is taxable there even though India exempts it. Because the Indian tax is nil, there is no foreign tax credit to claim. UAE residents pay no personal income tax, so the interest is effectively untaxed on both sides.

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

You may hold the deposit to maturity; it is typically redesignated to a Resident Foreign Currency (RFC) account rather than closed. The Section 10(15)(iv)(fa) exemption generally continues through your RNOR years, after which the interest becomes taxable in India once you are resident and ordinarily resident. Use the NRI Tax Status Calculator to estimate when your status changes.

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

Yes. Banks permit rupee and foreign-currency loans against FCNR(B) deposits as security under FED Master Direction No. 14/2015-16, subject to the bank's margin and the RBI ceilings in force. This lets you access liquidity without breaking the deposit and losing the interest that a pre-12-month closure would forfeit.