What an FCNR (B) deposit is
FCNR, Foreign Currency Non-Resident (Bank), is a foreign-currency-denominated term deposit at an Indian scheduled bank. You deposit in USD (or GBP, EUR, JPY, CAD, AUD, CHF, SGD, HKD); the bank holds it in that currency; you earn interest in that currency; you withdraw in that currency. INR never touches the deposit. There is no rupee-depreciation risk for the holder.
The interest is exempt under Section 10(15)(iv)(fa) of the Income-tax Act, provided (a) you are a non-resident, or not ordinarily resident under Section 6(6), for that year, and (b) the deposit is approved by RBI (which every scheduled-bank FCNR (B) deposit is). Zero TDS, zero Indian tax.
Notice which test that is. The FCNR exemption tracks your income-tax status, so it survives your RNOR years after you move back to India. The NRE exemption tracks your FEMA status instead, and that flips the day you return. FCNR vs NRE vs NRO sets the three accounts side by side.
FCNR is the (B), Bank, variant. There used to be FCNR (A), Acceptance, and FCNR (R), Rupee, but those schemes were discontinued decades ago. Today FCNR is universally FCNR (B). The product is regulated under FEMA Notification 5(R) Schedule II.
FCNR vs NRE: when which one wins
Both are tax-exempt in India for non-residents. The differences are operational:
| Feature | NRE | FCNR (B) |
|---|---|---|
| Currency | INR | USD / GBP / EUR / JPY / CAD / AUD / CHF / SGD / HKD |
| FX risk for holder | Yes (rupee depreciation eats USD-equivalent value) | No (held in foreign currency) |
| Typical interest rate | 6.5-7.5% (INR rates, higher) | 4.5-5.5% USD; 4-5% GBP; 2.5-3.5% EUR (RBI-capped at SOFR/benchmark + spread) |
| Tenure | 1-10 years | 1-5 years |
| Premature closure | Allowed, small rate haircut | Allowed, but no interest paid if closed before 1 year |
| Repatriability | Free | Free |
| Best for | Short-term INR income, no FX hedging needed | Long-term USD parking, INR depreciation hedge, US/UK NRIs preferring USD reporting |
The rate gap looks tempting toward NRE, but a 1.5-2% INR yield premium often gets eaten by 3-5% rupee depreciation against USD over multi-year holding periods. Run the math in real-USD terms before defaulting to NRE.
RBI rate cap: why FCNR rates look low
RBI caps the maximum interest rate banks can offer on FCNR (B) deposits to prevent excessive arbitrage and currency-risk mispricing. The cap is benchmarked to overnight rates in the deposit currency:
• USD FCNR: Overnight Alternative Reference Rate (post-LIBOR transition, typically SOFR) + spread (currently ~250 bps for 1-3y, ~300 bps for 3-5y) • GBP: SONIA + spread • EUR: €STR + spread • JPY: TONA + spread
The spread evolves with RBI policy, when India is short of dollars, RBI widens the spread to attract FCNR inflows; when there's no shortage, the spread narrows. Banks compete *within* the cap, not above it.
Net effect: FCNR USD rates of 4.5-5.5% in 2026 are typical. Compare against US Treasury 5-year (~4.2%) and a high-yield USD savings account (~4.5%) to decide if the FCNR premium is worth the deposit lock-in.
Eligibility and source-of-funds
Who can hold an FCNR (B): any Indian citizen, PIO, or OCI cardholder who is a person resident outside India under FEMA Section 2(w). Same FEMA test as NRE.
What can fund an FCNR: • Foreign-currency remittance into India • Transfer from another FCNR / NRE account (NRE to FCNR conversion happens at the bank's prevailing FX rate) • Maturity proceeds of another FCNR redeposited
What cannot fund an FCNR: • Indian-source INR income (must go to NRO) • Cash deposits in India
Tenure: 1, 2, 3, 4, or 5 years (no shorter, no longer per RBI).
Joint holdings: With another NR, or with a resident close relative on a Former or Survivor basis only (the same rule as NRE in RBI's Master Direction on deposits and accounts). During the NR's lifetime the resident joint holder can operate it only as a power-of-attorney holder, for local payments and remittances to the NR abroad.
Loans against FCNR: Permitted up to a certain percentage of deposit value, in INR or in foreign currency. The borrower can be the depositor or a third party. A loan against FCNR is one of the few legitimate ways for an NRI to get INR liquidity in India without breaking the FEMA source-of-funds discipline on the deposit itself.
Country-of-residence taxation. The same exemption pattern as NRE
India's exemption applies regardless of where you live. But your country of residence usually taxes its residents on worldwide income, including FCNR interest:
United States: FCNR interest is fully taxable on Form 1040 Schedule B at ordinary rates. State tax adds. No FTC because India levied no tax. However, FCNR is in your reporting currency (USD), which simplifies compliance. You don't deal with INR-to-USD conversion for each interest credit. For US NRIs, FCNR in USD is operationally cleaner than NRE in INR.
United Kingdom: Fully taxable on Self Assessment under arising basis post-FIG abolition. Same FTC issue. GBP FCNR is the UK NRI's clean choice.
Gulf states: No personal income tax on FCNR interest. Genuine double-zero.
Singapore / Hong Kong: Foreign-source-territorial regimes generally don't tax FCNR interest unless remitted (Singapore) or sourced locally (HK).
FBAR / FATCA implications for US persons: FCNR in any currency counts toward your aggregate foreign account balance. Same $10,000 FBAR threshold and same $200K-end-of-year / $300K-anytime FATCA Form 8938 thresholds (single, NRI living abroad). The FCNR currency doesn't matter. They convert to USD for reporting purposes.
When FCNR makes more sense than NRE or NRO
FCNR wins when: • You're a US / UK / EU NRI: currency-of-reporting matches FCNR currency, simplifying tax filings • You expect significant rupee depreciation (multi-year holds, major FX views) • You want to lock USD/GBP/EUR returns inside the Indian banking system • You're using it as collateral for an INR loan against FCNR (preserves the FX position) • You're transitioning from NRE to RFC on return to India (FCNR to RFC keeps the FX wrapper through RNOR)
NRE often wins for: • Gulf NRIs (no residence-state tax to optimise around; INR rate premium is pure gain) • Short-horizon depositors (1-2 years) where depreciation is small • People who eventually plan to remit back to India (saves you the FX leg)
Avoid FCNR for: • Sub-1-year horizons (no interest if closed before 1 year) • Currencies with very low rates (JPY FCNR rates are barely above zero; effort > yield) • Clients who don't actually understand the FX risk story (a 'safe' FCNR returning 5% USD looks safe in USD but is bond-like in your home tax view)