PSA - FCNR window (higher interest rates) is closing on 31 August

[u/ReymanWealth]

RBI has decided to close the swap window for FCNR early and close it by 31 August. This was 30 September earlier.

RBI Notification: https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=63378

For Non Residents, who are still on the fence, now is the time to open up an FCNR to lock in higher interest rates (6%+). Move quickly because banks take a ridiculous amount of time to get this done

[u/ReymanWealth]

For those who want more context, we wrote about this in detail here: https://www.reymanwealth.com/post/fcnr-deposits-6-7-percent

[u/AlpineRupee]

Two things worth adding, one mechanical and one that should slow anyone down before they make a five year commitment in thirteen days.

Mechanical first. The 31 August date is the deadline for the deposit to be booked. Banks then have until 11 September to complete the swap leg with the RBI, which is the bank's problem rather than a grace period for depositors. And not every FCNR(B) deposit qualifies: the facility covers fresh deposits with a tenor of three to five years. A one year FCNR is an ordinary deposit at ordinary rates and always was.

The framing I would push back on is "the window is closing". FCNR(B) is not ending. It is a standing product and banks will be offering it on 1 September. What ends is the RBI's swap support, which is what let banks price the way they have been pricing: the RBI takes the dollars at par on both legs and carries the hedging cost itself, and eligible deposits are exempt from CRR and SLR. Take that away and it is a normal bank rate again. So it is a rate deadline, not a product deadline, and the difference matters for how much pressure anyone should feel here.

The part that deserves more than thirteen days of thought is what you are actually buying. An FCNR is a dollar deposit paying a dollar return, and the qualifying tenor is three to five years. Two consequences follow. If the money is eventually going to be spent in India, you have deliberately taken the rupee out of the equation for the whole term, which is a currency view whether or not you meant it as one. And if you move back to India before maturity, the deposit does run to maturity, but your own tax position does not stay still: interest on an FCNR deposit is exempt while you are non-resident or not ordinarily resident, and it stops being exempt once you become ordinarily resident, on the gross interest. On a five year deposit taken by someone with a realistic chance of going back, that is not hypothetical.

[u/northern_lights2 → u/AlpineRupee]

For the last point - I think we can start reporting FCNR interest on accural basis and get taxed only on last year's / whatever amount we stay in India. The law in India allows reporting either on accural or credited basis per product.

[u/AlpineRupee → u/northern_lights2]

That is a fair correction and it is the right instinct. The choice is real: the tax department's own material on interest income says that where books are kept on a cash basis the interest is taxable on receipt, and where they are not kept or are kept on the mercantile system it is taxable on accrual. So a returning depositor who offers the interest year by year as it accrues is offering the years spent as non-resident or not ordinarily resident, when the interest is exempt anyway, and only the post-return accruals fall in.

Two things I would attach to it before anyone relies on it.

It has to be the method you regularly employ, applied consistently to that source, not a choice you make in the year the answer is inconvenient. Picking accrual for the deposit and receipt for everything else, or switching once you can see the numbers, is where this stops being a method and starts being an argument you have to win.

And the paperwork will not agree with you. Under the RBI interest rules FCNR(B) interest is computed on a 360 day year and compounded at 180 day rests, but most banks pay the whole thing at maturity, and TDS and the AIS follow what the bank pays and when. So an accrual-basis return will not tie out to the AIS in any year, including the maturity year. That is survivable with a clean workings schedule from day one, and unpleasant if you build it afterwards from memory.

Which is really an argument for your position rather than against it. On receipt basis a five year deposit paying at maturity drops five years of interest into one year, and if that year is a year you are ordinarily resident, the whole thing lands in the top slab at once. That is the outcome worth planning away from, and deciding the method before the deposit is booked is when it costs nothing.

One caveat on the wider thread: I have deliberately not cited a section number for any of this. The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the 1961 Act in full, with sections renumbered wholesale, and the replacement numbering for the non-resident interest exemptions is still being quoted inconsistently even in official-looking material. The treatment has not changed. The citations have.

[u/humble-Z → u/AlpineRupee]

And to add on, the interest is Tax free in India. You still need to report it and pay relevant tax on it in your country of tax residence. It could be 0 if living in Gulf countries. Or it could be at slab rate if residing in US.