Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
FCNR interest is tax-free
An FCNR deposit is held in foreign currency (so it avoids rupee-exchange risk), and its interest is exempt from Indian tax while you are a person resident outside India under FEMA — with no TDS. In this it is like the NRE account, and the opposite of taxable NRO interest.
It's tied to your status
The exemption follows your FEMA status, not your income-tax status. Once you return to India for good, the deposit is typically allowed to run to maturity but should be redesignated (often to an RFC account), after which the interest becomes taxable. Treatment on return can be nuanced — confirm for your facts.
A worked example
Example: you hold a US-dollar FCNR deposit while working abroad — the interest is tax-free in India and there is no TDS, and both principal and interest are fully repatriable. If you move back permanently, you review the deposit in the year of return, because the exemption can end even while you are still RNOR for income tax. Our NRI & FEMA service can advise on timing.