India is experiencing a substantial surge in Foreign Currency Non-Resident (FCNR) deposits, with the country anticipating inflows of ₹80-85 billion in the current period. According to SBI Research, FCNR(B) deposits have already reached ₹17.41 billion by mid-July, demonstrating strong investor confidence in Indian banking institutions. The latest data shows that total deposit inflows reached ₹20.72 billion till July 17, which included ₹1.97 billion from Overseas Foreign Currency Bonds (OFCBs) and ₹1.34 billion from External Commercial Borrowings (ECBs). SBI Research reports that the total amount mobilized so far in 45 days has crossed the total amount mobilized in 2013 over a three-month period, with public sector banks serving as the primary drivers of this mobilization effort. The influx is particularly significant as higher interest rates are expected to encourage renewals of maturing FCNR deposits, further bolstering foreign currency assets and reflecting positive economic trends.
According to tax experts, interest earned on FCNR deposits remains exempt from tax for non-residents and resident but not ordinarily resident (RNOR) individuals under the Income-tax Act, 2025. As reported by Mint, after returning to India, the interest on FCNR deposits will continue to be tax-free for as long as the individual qualifies as an RNOR. However, once the individual becomes a resident and ordinarily resident (ROR), the interest earned on such FCNR deposits will become taxable in India. This tax framework provides clarity for NRIs considering returning to India while maintaining the attractiveness of FCNR deposits for foreign investors.
From the perspective of Indian foreign exchange laws, FEMA allows FCNR deposits to be continued until maturity even after becoming a resident in India under FEMA regulations. According to tax experts, upon maturity, the proceeds of FCNR deposits may be transferred to a Resident Foreign Currency (RFC) Account, which is freely repatriable, if the individual does not wish to transfer them to a rupee account. However, once becoming a resident under FEMA, the maturity proceeds of FCNR deposits cannot be credited directly to an overseas bank account. This regulatory framework ensures proper management of foreign currency inflows and outflows.
For FY 2025-26, the tax implications will be governed by the Income-tax Act, 1961 as the Income-tax Act, 2025 comes into force from April 1, 2026. As reported by Mint, under ITA 1961, an Indian citizen or person of Indian origin visiting India during a financial year is regarded as a resident if their total income (excluding foreign sources) exceeds ₹15 lakh during that year and their stay in India is 120 days or more but less than 182 days, provided they have been present in India for 365 days or more during the four financial years preceding the relevant financial year.
SBI Research has revised its total FCNR forecast upward to ₹65-70 billion by the end of the scheme from an earlier estimate of ₹40-45 billion. The report indicates that Foreign Currency Assets (FCA) increased by ₹7.6 billion from June 8 till July 17, with the next reporting period expected to see FCA inflows of ₹10-12 billion based on current trends. The report notes that significant majority of existing FCNR deposits which are going to mature in Aug/Sep 2026 will be renewed under the new scheme due to higher interest rates, with an additional ₹10 billion expected to be mobilized through economies where tax concessions are available. This substantial mobilization effort is being led by public sector banks, which are exceeding previous records in foreign currency deposit collection, reflecting strong confidence in India's banking sector and economic stability. The ₹20.7 billion FCNR inflow is structured across three instruments: ₹17.4 billion from FCNR(B) deposits, ₹2.0 billion from Overseas Foreign Currency Bonds, and ₹1.3 billion from External Commercial Borrowings, with many IFSC-related procedural issues now resolved.
