Foreign Currency Non-Resident account (FCNR) that is a term deposit account maintained in a foreign currency by the non-resident Indian or Person of Indian Origin can be continued till the maturity term at the prescribed rate of interest even when the NRI returns to India and becomes a resident citizen. And from the date of his return to the home country, the FCNR deposit account shall be treated as a resident deposit for all other purposes except in respect of interest.

At the time of maturity the account has to be converted into a RFC or Resident Foreign Currency Account or a Resident Rupee deposit Account. RFC account enables resident Indian to maintain accounts in foreign currency. To know more about the features of such an account, click here.

In case an NRI maintains a non-resident external or a NRE account and has plans to return to India, immediately upon returning to the home country, account has to be re-designated as a RFC or resident account and for the same you have to show your intentions to stay back in the country for indefinite time. Know about the different features of NRE account.

Tax implication on interest earned on such NRE and FCNR deposit account

In the ordinary case, interest realized on deposits held in foreign currency shall not attract any tax liability in case you are a non-resident or a resident but not ordinary resident (RNOR). This means that if you have any income source from India and file an income tax return, interest income from such deposit has not to be shown in the return as it is tax-exempt.

Also, the interest income earned on NRE account balance shall be exempt from any income tax liability in India if you are a person resident outside the country.

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