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) the deposit is held by a person resident outside India under FEMA, and (b) the deposit is approved by RBI (which all scheduled-bank FCNR (B) deposits are). Zero TDS, zero Indian tax.
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 → 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 Either or Survivor / Former or Survivor basis (same as NRE rules under RBI's 2011 Master Direction). The resident joint holder cannot operate / withdraw during the NR's lifetime.
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 → 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)