FCNR Account: Foreign Currency Deposits, Rates and Tax Rules

An FCNR account, short for Foreign Currency Non-Resident (Bank) account, is a fixed deposit that lets Non-Resident Indians and Overseas Citizens of India park savings at an Indian bank in a foreign currency rather than rupees. The term runs from one to five years, six major currencies are accepted, the interest is exempt from Indian income tax while you remain a non-resident, and both principal and interest are fully repatriable. The appeal is simple: your money grows inside the Indian banking system without ever being exposed to rupee exchange-rate risk. If you also file taxes in the United States, though, “tax-free” is only half the story.

Who Can Open One

Eligibility is limited to individuals who qualify as NRIs, Persons of Indian Origin, or OCIs under India’s Foreign Exchange Management Act. In practice that means living outside India for work, business, or other reasons that signal an indefinite stay, with the appropriate visa or OCI documentation to back it up.

You can hold the account jointly with another NRI or OCI. Indian banks also allow a joint holding with a resident Indian relative on a “former or survivor” basis, which means the resident relative gains access only after the primary holder dies and cannot operate the account while the NRI is alive.¹

If you give someone in India power of attorney over your affairs, that person faces hard limits on your NRI accounts. A POA holder generally cannot open or close the account, cannot repatriate funds unless the POA specifically authorizes it, and cannot raise loans against the deposit on your behalf.

Accepted Currencies, Terms, and Minimumsh2>

Six currencies are permitted: U.S. Dollar, British Pound, Euro, Japanese Yen, Canadian Dollar, and Australian Dollar.² If your earnings sit in a currency outside this list, you would need to convert first.

The deposit must run at least one year and cannot exceed five. Banks are not allowed to accept or renew a deposit beyond five years.³ The RBI does not fix a universal minimum deposit amount; each bank sets its own, and the figure varies by currency and institution.

How the Interest Rate Is Set

Banks do not set FCNR rates freely. The Reserve Bank of India caps them with a formula tied to the overnight Alternative Reference Rate for each currency:

One to three years: overnight ARR plus 250 basis points (2.5%)
Three to five years: overnight ARR plus 350 basis points (3.5%)

Reference rates published by Financial Benchmarks India Pvt. Ltd. on the last working day of each month set the ceiling for the following month. Banks can offer any rate at or below that ceiling, and many vary rates slightly by deposit size. Because the benchmark is international rather than Indian monetary policy, FCNR yields usually trail domestic Indian deposit rates.

On a one-year deposit, interest is paid without compounding. For longer deposits, interest compounds at 180-day intervals and then for the remaining days. You can also choose to receive all the interest as a single payment at maturity, with the compounding built in.³

Indian Tax Treatment

Interest on an FCNR deposit is exempt from Indian income tax under Section 10(15)(iv)(fa) of the Income Tax Act, 1961, provided you keep your non-resident status throughout the deposit’s term. The bank deducts no tax at source, and you do not report the interest on an Indian return while you remain an NRI.

The exemption disappears once your residential status changes. If you return to India and become a Resident and Ordinarily Resident, interest on any FCNR deposit that is still running becomes taxable at your regular slab rate. There is a transitional cushion: individuals classified as Resident but Not Ordinarily Resident, typically for up to two or three years after returning, may still qualify for the exemption on foreign-source income during that window. The timing matters, so anyone planning a return should map out the tax year in which their status will flip.

U.S. Tax and Reporting if You File in the U.S.

This is where NRIs based in the United States get caught off guard. India may not tax your FCNR interest, but if you are a U.S. citizen, green card holder, or U.S. tax resident, the IRS treats the interest as ordinary taxable income. The U.S. taxes worldwide income, and interest is explicitly within the definition of gross income.⁴ There is no carve-out for foreign bank deposit interest, no matter how India treats it.

The reporting obligations are separate from the tax itself, and the penalties for missing them are steep:

FBAR (FinCEN Form 114). If the combined value of all your foreign financial accounts exceeds $10,000 at any point during the year, you must file an FBAR electronically with FinCEN by April 15, with an automatic extension to October 15. The threshold aggregates FCNR, NRE, NRO, and any other non-U.S. accounts.⁵
FATCA (Form 8938). If your total foreign financial assets exceed $50,000 on the last day of the tax year or $75,000 at any point during the year (double for joint filers), you must also report them on Form 8938 with your tax return.⁶

A single FCNR deposit can trip both filings at once. Non-willful FBAR violations can cost over $16,000 per form; willful violations run to the greater of roughly $165,000 or 50% of the account balance, per account, per year. The IRS actively pursues these.

One more wrinkle. Because FCNR deposits are denominated in a foreign currency, any gain or loss from exchange-rate movement when you eventually convert the proceeds is treated as ordinary income or loss under the foreign currency transaction rules.⁷ For a USD deposit this is a non-issue, since the dollar is already the functional currency. For euros, pounds, or yen, you may have a reportable gain or loss at maturity even if the deposit performed exactly as expected.

Opening and Funding the Account

You will need a valid passport, proof of NRI or OCI status (work permit, residence visa, employment contract, or OCI card), and proof of your overseas address such as a utility bill or foreign bank statement. A Permanent Account Number helps with tax tracking.

Most major Indian banks accept applications through their online NRI portals, and some have dedicated NRI branches that handle physical applications by mail. The funds themselves must originate abroad. The standard method is a SWIFT wire transfer into the bank. You can also fund an FCNR account by transfer from an existing NRE account or another FCNR account held in India.¹ You cannot fund it with rupees or with income earned inside India.

Loans Against Your Deposit

You can take a rupee loan secured by your FCNR deposit, which is useful if you need funds in India for a property purchase, family expenses, or business needs without breaking the deposit early. The bank holds the deposit as collateral and sets the margin case by case.

The RBI caps these loans at ₹100 lakh (roughly $120,000 at recent exchange rates) per depositor, whether the borrower is the NRI account holder or a third party.² Banks cannot slice the loan into smaller pieces to work around the ceiling. If you hold a large deposit and need substantial financing in India, this cap is a real constraint.

Early Withdrawal and Repatriation

Both principal and accrued interest are fully repatriable. You can send the full amount back to your country of residence in the original foreign currency without any special approval from the Reserve Bank of India.¹

Early withdrawal is allowed, with real penalties attached. If you close the deposit before completing one year, the bank pays zero interest. It may also charge an additional penalty to cover its swap costs, meaning the internal hedging costs it took on when it accepted your foreign currency deposit.⁸ For withdrawals after one year but before maturity, interest is paid, but the bank can impose a penalty at its discretion. The size varies by bank; the RBI does not prescribe a figure, so ask before you commit.

Deposit Insurance

FCNR deposits are covered by the Deposit Insurance and Credit Guarantee Corporation, but only up to ₹5 lakh (around $6,000) per depositor per bank across all deposit types combined.⁹ For a typical FCNR balance this coverage is a small fraction of the account. Spreading deposits across multiple banks raises the insured total, at the cost of managing multiple accounts and maturity dates.

What Happens When You Return to India

Returning does not force you to break the deposit. The RBI permits it to run to its original maturity at the contracted rate.³ What changes is what happens at maturity and how the interest is taxed going forward.

At maturity, the bank must convert the deposit into either a resident rupee deposit or a Resident Foreign Currency account, at your choice. An RFC account lets you keep holding funds in foreign currency even as a resident and use them for any permitted transaction inside or outside India.¹⁰ If you do nothing and the deposit sits past maturity for more than 14 days, the bank treats the renewal as a fresh deposit at whatever rate applies on the day you finally act, which is usually less favorable. On the tax side, interest earned while you qualify as RNOR may remain exempt as foreign-source income; once you become an ROR, interest from that point is taxable at your slab rate.

FCNR vs. NRE Accounts

NRIs often weigh FCNR deposits against NRE (Non-Resident External) fixed deposits, since both are fully repatriable and both earn tax-free interest in India. The core difference is currency. An NRE deposit converts your remittance into rupees at the time of deposit, so you earn rupee interest and bear the exchange-rate risk when you convert back later. An FCNR deposit keeps the money in the original foreign currency throughout, eliminating that risk.

NRE accounts are also more flexible: savings and current account versions exist alongside fixed deposits, with no one-year lock-in on the savings portion. FCNR is strictly a fixed deposit on the one-to-five-year term. NRE rates generally run higher than FCNR rates because they track Indian domestic interest rates rather than international benchmarks.

The trade-off is straightforward. If you expect the rupee to weaken against your home currency, FCNR protects you. If you expect it to strengthen or stay stable, the higher NRE yield may leave you better off. Many NRIs split funds between the two as a hedge.

1
Reserve Bank of India. Accounts in India by Non-residents
2
Reserve Bank of India. Master Circular – Foreign Currency Non-Resident (FCNR) Account Scheme
3
Reserve Bank of India. Master Circular on Interest Rates on Deposits held in FCNR (B) Accounts
4
Office of the Law Revision Counsel. 26 USC 61 – Gross Income Defined
5
Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR)
6
Internal Revenue Service. Summary of FATCA Reporting for U.S. Taxpayers
7
Office of the Law Revision Counsel. 26 US Code 988 – Treatment of Certain Foreign Currency Transactions
8
Reserve Bank of India. Master Circular of Instructions Relating to Deposits held in FCNR(B) Accounts
9
Reserve Bank of India. DICGC – Deposit Insurance FAQs
10
Reserve Bank of India. Foreign Currency Accounts by Resident Individuals