Will my FCNR deposit stay tax-free after I return to India?
I have been recently shifted to UAE for short term. I want to invest in 5-year FCNR deposit after RBI’s recent announcement. However, I will be returning to India in another 3 years. After I become a resident of India, will the interest earned on these FCNR deposits become taxable? Further, on maturity of the deposits, will I be permitted to transfer the maturity proceeds abroad?
– Name withheld on request
Under the provisions of the Income-tax Act, 2025, interest earned on FCNR deposits continues to remain exempt from tax in the hands of a non-resident or a resident but not ordinarily resident (RNOR).
Accordingly, after your return to India, the interest earned on your FCNR deposits will continue to be exempt from tax for as long as you qualify as an RNOR under the provisions of the Income-tax Act, 2025. Once you become a resident and ordinarily resident (ROR), the interest earned on such FCNR deposits will consequently become taxable in India.
Maturity proceeds
From the perspective of Indian foreign exchange laws, FEMA allows FCNR deposits to be continued until maturity even after you become a person resident in India under FEMA.
Upon maturity, the proceeds of the FCNR deposits may be transferred to a Resident Foreign Currency (RFC) Account, which is freely repatriable, if you do not wish to transfer them to a rupee account.
However, once you become a person resident in India under FEMA, the maturity proceeds of the FCNR deposits cannot be credited directly to an overseas bank account.
I stay in France and had to come to India multiple times in FY 2025-26 for a family medical emergency. Because of this, my stay in India comes to around five months. I know that the visit threshold in India has lowered to 120 days. Will I become an Indian tax resident because of this for this year? My India income consists of my share of profit from my family partnership firm of around 22 lakhs, apart from minimal bank interest and dividends of about 6 lakhs. And my foreign income is my business income from France.
– Name withheld on request
Since the income threshold is to be determined for FY2025-26, the tax implications will be governed by the provisions of the Income-tax Act, 1961 (ITA 1961). The Income-tax Act, 2025 will not apply, as it comes into force from 1 April 2026.
Under ITA 1961, an Indian citizen or a person of Indian origin (PIO) visiting India during a financial year is regarded as a resident in India if their total income (excluding income from 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.
ITA 1961 defines total income as the income chargeable to tax under the Act after giving effect to the applicable exemptions.
Residency status
Accordingly, your exempt share of profit of ₹22 lakh from the Indian partnership firm will not be included while determining whether your Indian income exceeds the ₹15 lakh threshold for the purpose of the residency provisions applicable to Indian citizens and PIOs visiting India.
Therefore, as your taxable Indian income (excluding the exempt share of profit) is below ₹15 lakh, the reduced 120-day threshold will not apply to you. Consequently, you will continue to qualify as a non-resident.
Harshal Bhuta is partner at P.R. Bhuta & Co. CAs.
