FCNR(B) Deposits: Lock in Elevated Rates Before August 31, 2026
The RBI's USD-INR Forex Swap Facility closes its FCNR(B) channel on August 31, 2026. NRIs who lock in current elevated rates before this deadline will retain them for the full deposit tenure. Understand the deadline, tax treatment, and home-country implications.
CA Harun Raaj
Chartered Accountant · Harun Raaj & Associates
Legal basis: Foreign Exchange Management (Deposit) Directions, 2016 under Section 10(4) and Section 11(2) of the Foreign Exchange Management Act, 1999; Section 10(4)(ii) of the Income-tax Act, 2025 — Effective: ongoing. Source: RBI Press Release prid=63378 (August 14, 2026); MCA-rbi))/CBDT guidance. Last reviewed by CA Harun Raaj: August 2026.
On August 14, 2026, the Reserve Bank of India announced that its USD-INR Forex Swap Facility — launched June 8, 2026 — will close the FCNR(B) channel for new deposits on August 31, 2026. This creates a time-sensitive window for Non-Resident Indians holding foreign currency. Banks currently offer 6–8%+ per annum on FCNR(B) deposits because the RBI swap facility offsets their hedging cost. Once the window closes, this economic rationale disappears and rates are expected to normalise. NRI depositors who lock in current rates before August 31 will retain those rates for their full tenure, regardless of market changes.
How the RBI Swap Facility Works
The scheme allows authorised dealer (AD) banks to mobilise foreign currency from three sources:
- FCNR(B) deposits from NRIs and Persons of Indian Origin
- Overseas Foreign Currency Borrowings (OFCBs) from foreign lenders
- External Commercial Borrowings (ECBs)
Participating banks enter into USD-INR swap agreements with the RBI, converting foreign currency receipts into rupees at a predetermined rate. This eliminates currency risk and allows banks to offer elevated FCNR(B) rates competitively. By August 13, 2026, the scheme had attracted USD 56,846 million in total inflows — FCNR(B) alone accounted for USD 52,300 million.
What Is Closing and What Continues
The FCNR(B) channel, which mobilised the largest share (USD 52.3 billion), is being wound down while external borrowing channels remain open.
Key point: NRI depositors who open FCNR(B) deposits before August 31, 2026 lock in current elevated rates for their entire tenure, even after rates normalise.
FEMA Rules for FCNR(B) Deposits
FCNR(B) deposits are governed by the Foreign Exchange Management (Deposit) Directions, 2016 under the Foreign Exchange Management Act, 1999.
Deposit features:
- Eligible depositors: Non-Resident Indians (NRI) and Persons of Indian Origin (PIO)
- Permitted currencies: USD, GBP, EUR, JPY, CAD, AUD (varies by bank — confirm with your AD bank)
- Tenure: Minimum 1 year, maximum 5 years
- Repatriability: Both principal and interest are fully repatriable — no FEMA restrictions apply
- PIS account not required: Unlike Portfolio Investment Scheme equity purchases, FCNR(B) deposits do not require a PIS account
Indian Income-Tax Treatment
Interest earned on FCNR(B) deposits is exempt from Indian income tax under Section 10(4)(ii) of the Income-tax Act, 2025 for NRI and RNOR (Resident but Not Ordinarily Resident) status holders. No Tax Deducted at Source (TDS) is applied. The exemption lapses immediately upon your residential status changing to full resident.
Tax Treatment in Your Country of Residence
India's exemption does not bind your home country. Tax treatment depends on your citizenship and country of residence:
United States-resident NRIs: FCNR(B) interest is fully taxable in the US despite India's exemption. The India-US DTAA (Article 11 — Interest) allows India to impose withholding at 10% on gross interest; you claim this as a foreign tax credit in your US tax return. Consult a US CPA specialising in NRI taxation before depositing.
Gulf region residents (UAE, Qatar, Kuwait, Bahrain, Oman, Saudi Arabia): These jurisdictions generally impose zero tax on interest income from abroad. Combined with India's Section 10(4)(ii) exemption, FCNR(B) deposits produce fully untaxed yield — the optimal client fit for this window.
United Kingdom-resident NRIs: Your remittance basis and domicile status determine taxability. FCNR(B) interest is foreign-source income and subject to UK domicile and remittance rules. Consult a UK tax specialist.
Other jurisdictions: Consult your local tax advisor. Australia, Canada, and Singapore have specific treaty provisions with India; rates and deductibility vary.
Action for NRI Depositors
If you hold foreign currency and are an NRI:
- Confirm your residential status for Indian tax purposes (Section 6, ITA 2025) with a Chartered Accountant.
- Verify your home-country tax treatment on foreign-source interest income with your overseas tax advisor.
- Contact your authorised dealer bank and request FCNR(B) rates and terms (tenure, frequency, bank-specific currencies).
- If opening a deposit, complete KYC and documentation before August 31, 2026 to lock in current rates.
- Retain all bank statements and FEMA-related documentation for compliance and tax filing.
I'm CA Harun Raaj, Visakhapatnam. If you are an NRI evaluating FCNR(B) deposits or need clarity on your residential status and tax obligations, reach out before the August 31 deadline.
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See Also
Frequently Asked Questions
Can I open an FCNR(B) deposit after August 31, 2026?+
Yes. FCNR(B) is a permanent product under the Foreign Exchange Management (Deposit) Directions, 2016. What closes on August 31 is the RBI's specific USD-INR Forex Swap Facility. After the deadline, banks will still offer FCNR(B) deposits, but rates will be bank-determined and expected to be significantly lower as the elevated rates were tied to the swap facility's hedging advantage.
Will my existing FCNR(B) deposit be affected by the August 31 closure?+
No. Deposits opened before August 31 continue at their contracted rate for the entire tenure (1 to 5 years). The closure affects only new deposits opened after August 31.
Does the ₹7.5 lakh Liberalised Remittance Scheme (LRS) limit apply to FCNR(B)?+
No. FCNR(B) deposits do not count against your LRS limit because they are funded by foreign currency already held outside India (inward remittance by the NRI). LRS limits apply only to residents sending money outward from India.
How do I determine if I am NRI, RNOR, or Resident for tax purposes?+
Your residential status under Section 6 of the Income-tax Act, 2025 is determined by your physical presence and intention to stay in India during the financial year and preceding four years. A Chartered Accountant can confirm your status based on your travel records for FY 2025-26. Only NRI and RNOR status qualify for the Section 10(4)(ii) interest exemption.
Is FCNR(B) interest taxable in the United States?+
Yes. US-resident NRIs must report FCNR(B) interest as taxable income in the US, despite India's Section 10(4)(ii) exemption. The India-US DTAA allows India to withhold at 10% on gross interest; you claim this as a foreign tax credit in your US return. Consult a US CPA before depositing.
What is a Persons of Indian Origin (PIO) and am I eligible?+
A PIO is an individual of Indian origin (Indian ancestry) who holds a citizenship other than Indian. PIO eligibility for FCNR(B) is permitted under the Foreign Exchange Management (Deposit) Directions, 2016. Confirm your eligibility with your authorised dealer bank and have proof of Indian descent ready.
Which currencies can I deposit under FCNR(B)?+
The permitted currencies are USD, GBP, EUR, JPY, CAD, and AUD. However, the exact list and rates vary by bank. Contact your authorised dealer bank to confirm which currencies it offers for FCNR(B) deposits.
Will interest on FCNR(B) be subject to TDS if I am NRI?+
No. Under Section 10(4)(ii) of the Income-tax Act, 2025, interest on FCNR(B) deposits is exempt from TDS for NRI and RNOR status holders. No Tax Deducted at Source is applied to your interest payments.
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