FCNR(B) Deposits for NRIs: Holding Savings in Foreign Currency as a Fixed Deposit to Sidestep Rupee Depreciation

For an NRI watching the rupee slide year after year, the most painful tax is the one nobody charges you: exchange-rate erosion. A deposit that earns a healthy rupee interest rate can still leave you poorer in dollar or dirham terms once the Indian rupee depreciates. The Foreign Currency Non-Resident (Bank) deposit — universally shortened to FCNR(B) — is the one Indian banking instrument purpose-built to remove that risk: you deposit in a foreign currency, you earn interest in that same foreign currency, and you take both principal and interest back in that currency. The legal scaffolding sits in the Reserve Bank of India's FED Master Direction No. 14/2015-16 on Deposits and Accounts, which permits NRIs and Persons of Indian Origin to open these accounts and maintain them strictly as fixed deposits with a tenor of one to five years. This article walks through the FEMA position, the Indian and foreign tax treatment, and the precise repatriation mechanics so you can decide whether parking savings in an FCNR(B) deposit fits your currency-protection strategy.

FEMA / DTAA Position

The FCNR(B) account is a creature of the Foreign Exchange Management Act, 1999, operationalised through RBI's FED Master Direction No. 14/2015-16. Under this direction, the account may be opened only by a non-resident of Indian nationality or origin, accepted in any permissible (freely convertible) currency, and maintained exclusively in the form of a term deposit — there is no savings or current variant of FCNR(B). The permitted maturity band is one year to five years, which deliberately excludes ultra-short tenors and caps the bank's foreign-currency liability at five years.

Section 6 of FEMA, 1999 is the governing logic: capital-account transactions by non-residents require RBI permission unless specifically permitted, and the Master Direction is precisely the instrument that grants that standing permission for FCNR(B) deposits. Because the funds are sourced from abroad in convertible currency, they never become "Indian" money in the rupee sense — RBI treats the account as a foreign-currency liability of the bank, which is why repatriation is frictionless. For a fuller view of how non-resident banking sits inside the exchange-control regime, see our explainer on the FEMA framework.

On the treaty side, the Double Taxation Avoidance Agreement matters less for FCNR(B) than for most NRI income, and the reason is structural: as the next section shows, the interest is exempt in India, so there is no Indian tax for a DTAA to relieve. The treaty only becomes relevant in your country of residence, where the interest is almost always taxable. India's DTAAs cap the source-state interest rate at 15% for the United States and United Kingdom and 12.5% for the United Arab Emirates, but those ceilings bite only where India actually taxes the interest — which, for FCNR(B), it does not.

Tax Treatment in India

The headline benefit is unambiguous: interest on an FCNR(B) deposit is fully exempt from Indian income tax for as long as you hold non-resident status. The exemption flows from 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 person who is not ordinarily resident, on deposits in foreign currency that the RBI has approved. This is the same exemption logic that makes NRE account interest tax-free under Section 10(4)(ii) — FCNR(B) simply applies it to a foreign-currency fixed deposit instead of a rupee one.

Because the interest is statutorily exempt, no tax is deducted at source. There is no TDS on FCNR(B) interest, no Form 15CA/15CB drama on the interest credits, and nothing to reclaim through a return solely on account of the deposit. This is a meaningful contrast with an NRO fixed deposit, where banks deduct TDS at 30% plus surcharge and 4% health-and-education cess on interest before crediting it.

The table below summarises how the three principal NRI deposit types are taxed in India under the FY 2025-26 framework.

One caveat that trips up returning NRIs: the exemption is tethered to non-resident (or RNOR) status. The moment you become a resident under Section 6 of the Income-tax Act, fresh interest accruals lose the Section 10(15)(iv)(fa) shelter unless you convert the deposit to a Resident Foreign Currency (RFC) account, whose interest enjoys a parallel exemption only while you remain not-ordinarily-resident. The surcharge ladder — 10% above Rs 50 lakh of total income, 15% above Rs 1 crore, 25% above Rs 2 crore, and capped at 25% in the new regime — only ever becomes relevant if you have other taxable Indian income, since the FCNR(B) interest itself stays outside the tax base.

Tax Treatment Abroad

Tax-free in India does not mean tax-free everywhere. Most residence countries tax their residents on worldwide income, so the FCNR(B) interest that India ignores is usually fully taxable where you live. A US-resident NRI, for instance, must report the interest on their Form 1040 and pay tax at their marginal federal rate, because the India-US DTAA (effective 12 September 1991) allocates a 15% source-state ceiling on interest that India simply chooses not to levy — leaving the US free to tax the full amount in the residence state.

The foreign tax credit mechanism, which normally rescues NRIs from double taxation, offers little here precisely because there is no Indian tax to credit. Article 24 of the India-US treaty grants a foreign tax credit in the country of residence, but a credit requires foreign tax actually paid; since India deducts nothing on FCNR(B) interest, there is no Indian tax to offset against your US liability. The same asymmetry applies to a UK-resident NRI, where the India-UK DTAA (effective 26 October 1993) sets a 15% interest ceiling that goes unused. To model how credits work where India does tax your income — rental or capital gains, for example — use our foreign tax credit calculator.

The UAE is the standout exception and the reason FCNR(B) is so popular in the Gulf. The UAE levies no personal income tax, so the India-UAE DTAA (effective 22 September 1993) and its 12.5% interest ceiling are largely academic for individuals: the interest is exempt in India and untaxed in the UAE, producing a genuinely tax-free return in the depositor's home currency. The table below sets out the relevant treaty interest ceilings.

Repatriation Mechanics

Repatriation is where FCNR(B) shines, and it is the cleanest of all NRI accounts. Under FED Master Direction No. 14/2015-16, both the principal and the interest on an FCNR(B) deposit are fully and freely repatriable, on the same terms as an NRE account — meaning there is no annual ceiling, no specific RBI approval, and no requirement to demonstrate the source of funds at the point of remittance. You can move the entire maturity value back to your overseas bank in the deposit currency, with no conversion into and out of rupees at any stage.

That is a decisively different regime from the NRO account, where repatriation is capped at USD 1 million per financial year across all NRO balances and requires Forms 15CA and 15CB certifying that taxes have been paid. We have covered that cap in detail in our analysis of the NRO USD 1 million repatriation limit. With FCNR(B), the money never enters the rupee system, so the USD 1 million NRO ceiling simply does not apply, and you can repatriate freely whenever the deposit matures.

The currency-protection logic is the whole point. Suppose you hold a three-year USD FCNR(B) deposit: at maturity you receive your dollars plus dollar interest, entirely insulated from whatever the rupee did over those three years. Had the same money sat in a rupee NRE FD, a higher rupee interest rate could still be wiped out — or worse — by rupee depreciation when you convert back to dollars. The trade-off is that FCNR(B) interest rates are lower, because RBI caps them by reference to the overnight Alternative Reference Rate (ARR) of the respective currency plus a bank-specific spread, and global dollar rates have tracked the broader policy cycle. To weigh the rupee-versus-foreign-currency decision quantitatively, run the numbers through our FCNR deposit calculator and compare against the repatriation calculator.

Two operational rules round out the mechanics. First, premature withdrawal is permitted but RBI directions require that no interest is payable if the deposit is withdrawn before completing one year. Second, loans against FCNR(B) deposits are allowed in both India and abroad, subject to the Master Direction's margin and end-use conditions — a useful liquidity lever that lets you borrow without breaking the deposit and triggering the exchange-rate exposure you opened it to avoid. For NRIs juggling multiple income streams in India, our NRI tax calculator helps map which income is taxable and which, like FCNR(B) interest, is not.

FAQ

Is FCNR(B) interest really tax-free in India even for large deposits?

Yes. Section 10(15)(iv)(fa) of the Income-tax Act, 1961 exempts the interest entirely, with no cap on the deposit size, for as long as you hold non-resident or not-ordinarily-resident status. There is no TDS on the interest, which sits outside your Indian taxable income altogether. The exemption is status-based, not amount-based, so a USD 1 million deposit enjoys exactly the same treatment as a USD 10,000 one.

Which currencies can I hold an FCNR(B) deposit in?

RBI's FED Master Direction No. 14/2015-16 permits any freely convertible currency. In practice Indian banks commonly offer US dollars, pounds sterling, euros, Japanese yen, Canadian dollars and Australian dollars. You choose the currency at the outset, the deposit and interest are denominated in it throughout the one-to-five-year tenor, and you receive the maturity proceeds in that same currency.

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

Both are fully repatriable and both pay India-tax-free interest, but the NRE FD is in rupees and the FCNR(B) is in foreign currency. The NRE deposit exposes you to rupee depreciation on conversion; the FCNR(B) eliminates that exchange-rate risk by keeping everything in your chosen foreign currency. NRE rates are typically higher in nominal rupee terms, while FCNR(B) trades some yield for currency certainty.

Do I need to pay tax on FCNR(B) interest in my country of residence?

Usually yes. Countries that tax worldwide income — including the United States and United Kingdom — will tax the interest at your local rate even though India exempts it. The India-US (1991) and India-UK (1993) treaties cap source-state interest at 15%, but since India levies nothing, there is no foreign tax credit to claim. The UAE, with no personal income tax, is the main exception where the return stays genuinely tax-free.

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

The interest exemption under Section 10(15)(iv)(fa) is tied to non-resident or RNOR status. On becoming a resident, you may let the deposit run to maturity and then convert it to a Resident Foreign Currency (RFC) account, which preserves foreign-currency holding and a parallel interest exemption while you remain not-ordinarily-resident. Once you become ordinarily resident, the interest becomes taxable in India in the normal way.

Can I repatriate FCNR(B) funds without the USD 1 million limit that applies to NRO accounts?

Yes. Principal and interest on FCNR(B) deposits are fully repatriable with no annual ceiling, on the same terms as NRE accounts, because the money is held in foreign currency and never enters the rupee system. The USD 1 million per financial year cap applies only to NRO accounts, where rupee income and asset-sale proceeds accumulate.

Are loans available against an FCNR(B) deposit?

Yes. Under FED Master Direction No. 14/2015-16, banks may grant loans against FCNR(B) deposits both in India and overseas, subject to margin and end-use conditions. This lets you raise liquidity without breaking the deposit prematurely — which would otherwise forfeit interest if done within the first year and re-expose you to the exchange-rate risk the deposit was designed to avoid.