FCNR Deposit 2026: How NRIs Lock In Tax-Free Interest Up to 7% Before RBI's September 30 Deadline

By Nitish Bharadwaj · Published Jul 17, 2026 · 6 min

NRIs holding a Foreign Currency Non-Resident (FCNR) deposit earn interest that's fully exempt from Indian income tax under Section 10(15)(iv)(fa), with zero TDS — and unlike an NRE FD, there's no rupee-depreciation risk since both principal and interest stay in the original foreign currency. A June 2026 RBI window, where the central bank is absorbing banks' hedging costs, has pushed FCNR rates on 3-5 year US dollar deposits to as high as 7%, but only for deposits booked by September 30, 2026. This guide covers eligibility, tenure, premature-withdrawal rules, and how FCNR compares to NRE.

Every NRI FD guide on this site so far has stopped at NRE vs NRO — but there's a third account type that beats both on tax treatment for money genuinely earned abroad: the FCNR deposit, held in foreign currency rather than rupees. It carries a stronger tax exemption than even an NRE FD, and a temporary RBI scheme running through September 30, 2026 has pushed dollar rates on it to levels not seen in years.

What an FCNR Deposit Actually Is

A Foreign Currency Non-Resident (Bank) deposit — FCNR(B) — is a term deposit that NRIs and PIOs can open with an Indian bank in a permitted foreign currency, typically US Dollar, Pound Sterling, Euro, Japanese Yen, Canadian Dollar, or Australian Dollar, rather than in rupees. Both the principal and the interest are credited and repaid in that same foreign currency, which is the single biggest structural difference from an NRE FD — an NRE deposit is booked and repaid in rupees, so if the rupee weakens against your income currency between deposit and maturity, you lose value on conversion even though the FD itself earned interest. FCNR removes that exchange-rate risk entirely, since you never convert into rupees until you choose to.

Why FCNR Interest Beats Even NRE on Tax

Our guide to NRE vs NRO FDs covers how NRE FD interest is exempt from Indian tax under Section 10(4)(ii). FCNR interest is exempt under a separate, distinct provision — Section 10(15)(iv)(fa) — but the practical result is the same: fully tax-free, with zero TDS deducted by the bank. The exemption holds as long as you maintain your Non-Resident status under FEMA and the deposit is held with an RBI-authorised bank.

The RBI Window Pushing Rates to 7% — and Its September 30 Deadline

On June 5, 2026, the RBI announced a temporary swap facility under which the central bank absorbs the hedging cost banks would otherwise pass on to depositors, for fresh or renewed FCNR(B) deposits with a tenure of 3 to 5 years. Hedging a foreign-currency liability typically costs a bank 2-3 percentage points a year; with the RBI covering that cost, several major banks including HDFC Bank and Yes Bank have pushed USD FCNR rates to 7% or higher — the best levels this product has offered in years. The window applies only to deposits booked or renewed between June 8 and September 30, 2026 — after that date, the concessional swap facility ends and rates are expected to fall back toward pre-window levels.

Which One Should You Actually Open?

If your income genuinely originates abroad and you're comfortable holding it in that foreign currency until you need rupees, FCNR removes currency risk entirely and currently pays a meaningfully higher rate than a rupee NRE FD for the same money, at least until the September 30 window closes. If you'd rather lock in a known rupee return, don't mind currency exposure at the point you eventually convert, or want a shorter minimum tenure than FCNR's 1-year floor, an NRE FD remains the simpler default. For India-sourced income like rent or dividends, neither applies — that money still belongs in an NRO account, taxed and capped on repatriation as covered in our NRE vs NRO guide.

For comparison purposes only, since neither is actually open to an NRI, our FD and savings rates roundup after the RBI's repo rate hold and TDS on FD interest guide show how differently a resident depositor's FD interest is taxed — FCNR's zero-TDS, fully exempt treatment is the exception, not the rule, in Indian deposit taxation.