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FCNR Deposit for NRIs – Secret Revealed

By Hemant Beniwal

Why Financial Planning?

Planning is bringing the future into the present so that you can do something about it NOW.

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Check Financial Plan For NRIs
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NRIs have many investment options in India but the FCNR account is one of the most ignored ones… You can read all about FCNR & its comparison with NRE FD – also check is it a good investment. (you can also check how FCNR rates changed in the last few years)

fcnr deposit

What is FCNR account?

FCNR account stands for Foreign Currency Non-Resident account. It can be opened only by NRIs. It is similar to a Fixed Deposit but it is a Fixed Deposit wherein money can be deposited in foreign currency and interest can be earned on the same.

The FCNR Account scheme was introduced with effect from May 15, 1993, superseding FCNR (A) where exchange rates dangers were borne by RBI impacting its balance sheet. This account can be opened with all the Indian bank or its division to invest in India by depositing currencies that are designated, on which you can earn interest. These balances can thus be maintained by Non-resident People of Indian Nationality or Indian origin.

Read – Best Investment Options for NRIs

What are the key features of FCNR deposit?

The key features of FCNR accounts –

  • It is a fixed deposit account that can be opened by NRIs
  • Usually the tenure of an FCNR account ranges from 1 year to 5 years.
  • The account can be opened as a joint account with another NRI
  • The interest rate is determined by the bank based on the ceiling determined by RBI.
  • The NRI can avail of the nomination facility for this account. The nominee can be an NRI or a resident Indian.
  • The FCNR account can be continued till its maturity date if the status of the account holder changes from NRI to Resident Indian.

Why should I have a dollar deposit in India?

  • An FCNR account is a useful account to invest money in as regular interest rate is paid.
  • There is no currency fluctuation risk as the amount invested and amount paid back in terms of principal and interest are in the same designated foreign currency.
  • The interest earned is not taxable in India.
  • If you are an NRI, you can invest your earnings which might be in foreign currency in an FCNR account without any exchange rate fees and also get back your investment along with interest without any exchange rate fees.

Check – Status for NRE FD after return to India

Which currencies are allowed in FCNR account? 

The account can be opened by depositing money in foreign currency. Major currencies such as Australian Dollar, Canadian Dollar, Japanese Yen, Euro, UK Pound and US Dollar are allowed. The currency depends on the bank with which the account is being opened.

Any repatriation restrictions on Foreign Currency Non-Resident account?

The amount in the FCNR account is freely repatriable. The amount can also be transferred to the nominee’s account without any charges or taxes in case of death of primary NRI account holder.

FCNR Interest Rate

Here are the interest rates on FCNR accounts of some banks for NRI USD account in India (for comparison I have also shared 2019 rates)

Bank Currency Tenure March 2019 Oct 2020
ICICI Bank USD >= 12 months < 24 months 3.64% .48%
ICICI Bank GBP >= 12 months < 24 months 1.70% .31%
HDFC Bank USD > 12 months <18 months 3.50% .01%
HDFC Bank GBP > 12 months <18 months 1.45% .01%
SBI (<USD 300000) USD >12 months< 24 months 3.64% .75%
SBI GBP >12 months< 24 months 1.45% .59%

Read – Mutual Funds for NRIs in India

What are the tax implications of income earned

  • Interest income earned is tax-free in India.
  • The amount that is transferred to Resident Foreign Currency account or Resident Rupee account after maturity is not taxable as well.

Are there any drawbacks 

  • It cannot be opened as a joint account with a resident Indian.
  • Premature withdrawal is subject to penalty. It depends on the bank where the account is.
  • The interest rate is usually lower than that of NRE/NRO deposit accounts.

How do I open an account?

You can contact the bank and you require documentation such as Passport, Visa, KYC, FACTA declaration and identity proof and address proof for current residence.

Loan Against FCNR Deposit

Usually, the FCNR account holder can get a loan against this account subject to certain conditions. The loan can be taken for personal or business use.

It’s possible to use your own deposits and get funds from both in Indian and overseas currencies.

Where do you avail loans from FCNR deposits?

Ideally, it is possible to avail a loan from your FCNR deposit anywhere on the planet. You’ll need to check on those bank’s policies prior to applying.

NRE Vs FCNR Account

NRIs can open bank accounts in Indian banks. These can be Non-Resident Ordinary Rupee (NRO) accounts, Non-Resident Rupee (NRE) accounts and Foreign Currency Non-Repatriable account (FCNR) accounts.

FCNR Interest

An NRI can have fixed deposits in an FCNR account or in an NRE account. Let us look at the key similarities and differences between the two –

Key Features FCNR account Vs NRE FD

An NRE FD is a fixed deposit account wherein the NRI makes deposits from overseas in an account in an Indian bank. The amount will be converted into Indian rupees.

This account is a fixed deposit account wherein the NRI invests in a foreign currency. Not all currencies are accepted Some of the common ones accepted are the Australian Dollar, British Pound, Canadian Dollar, Euro, Japanese Yen and US Dollar etc.

Interest

In case of an NRE FD, principal and interest are credited to NRE savings account. The amount can be freely repatriated.

At the time of maturity, principal and interest can be freely repatriated.

Here is a comparison of the Interest Rates offered by different banks for FDs with a tenure of 1 year.

Bank Interest Rate on NRE FD (1 Yr) Interest Rate on FCNR
  INR USD CAD
ICICI Bank 5% .48% .73%
SBI 5.1% .75% .78%
HDFC Bank 5.1% .01% .01%

SBI – Interest in FCNR for Amount <USD 300000, Interest in NRE FD for amount < Rs. 2,00,00,000

HDFC – Interest in NRE FD for amount < Rs. 5,00,00,000

Taxability FCNR & NRE FD

Interest earned on both NRE FD and FCNR is tax-free in India.

Currency risk

If the rupee depreciates further at the time of maturity and repatriation, you will lose value and money in an NRE FD account.

There is not much of currency risk as you invest and withdraw in the same foreign currency

Joint Accounts

NRE FD accounts and FCNR accounts can be opened with NRI as joint holders or an NRI and a resident Indian.

On Return to India

FCNR and NRE deposits can be closed immediately or can be allowed to run up to maturity.

They can be converted to Resident Foreign Currency Accounts after maturity till the individual has an RNOR status.

Many features are similar to both accounts. They primarily differ in currency and interest rates.

Is FCNR good Investment?

In the long term, you will see that FCNR & NRE FD returns will be more or less the same because interest differential will take care of Indian Rupee depreciation. You can consider Foreign Currency Non-Resident account for diversification… it can also be considered after periods of significant appreciation of Indian Rupee in the short term.

If you have any queries related to FCNR – please add in the comment section.

fcnr deposit
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Hemant Beniwal


Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice in 2009 & is among the first generation of financial planners in India. He also authored Bestseller book "Financial Life Planning". 

  • It’s not very easy to open FCNR account with few banks. The staff don’t know about this product. It’s a pity. They take long time & long procedure to open with few banks.

  • Can you tell us in which section of Income Tax law, it is mentioned that interest earned in FCNR account is tax free in India. Regarding NRE FD, it is there.

  • EUR FCNR interest is very low compare or even negligible to other currencies. Can i invest in USD from Europe, is any specific restrict in opening FCNR based on country you stay.

  • Besides FD deposit in FCNR is there any financial instrument risk free like( Gov. bonds which can be considered with interest rate higher then FD)

  • Fema says the NRI upon becoming resident,has to redesignate FCNR as RFC and the interest thereafter is tax free.
    RBI says, one can hold on to FCNR till its first maturity, even after the NRI becomes ROR, but it does not match with FEMA.
    IT Act says, for 2-3 yrs NRI can be RNOR after returning, and thereafter Interest on FCNR, if continued till first maturity or RFC, if redesignated, as per FEMA or RBI, is taxable. Which one is more authentic and transparent. RBI, FEMA, or IT

    • Hi Ramdas,

      As per Section 10 (clause 4(ii)) of the Income Tax Act, NRE interest is exempt from tax only for those who qualify as NRI as per FEMA. Since, as per FEMA, you become resident from day 1 of permanent return, you cannot hold NRE deposits. Even if you do ( as you said that RBI allows so ) the interest on such NRE deposits is taxable.

  • My wife returned to India in July19 after being NRI. my queries are :

    1 ) When she become RNOR from NRI status ?? from July 19 itself or only after spending 181 days in India??

    2) when she is obligated to convert her current NRE deposits / NRE account to RFC deposit or rupee a/c now itself or after spending 181 days in india??

    4) Can she convert NRE deposits to RFC deposits after maturity which in some cases several years away.

    3) underthese circumstances , since current NRE deposits can be continued till maturity what will be tax treatment for the interest earned either for NRE deposit or RFC deposit if we choose to convert so now itsef during RNOR or after that ( ROR ) ??

    Please advise.

    • Hi Eswaran,

      As per my knowledge, FCNR account can be hold for 2 years after returning to India. NRE fds interest will be taxable if you are not an NRI or RNOR.

    • Hi Baiant,

      As per my knowledge, there will be no tax if there is no gain. Capital gain is calculated as: Sales Value(Sell Value-Any transfer fee or brokerage)-Cost of Acquaisition(Purchase Cost+Cost of Improvement).

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