FCNR(B) Deposits & ECB Forex Inflows: RBI Swap Facility 2026 Tax Guide

What Happened?

The Reserve Bank of India (RBI) announced an extended USD-INR Forex Swap facility on June 8, 2026, designed to attract foreign currency deposits and borrowings into India. As of August 13, 2026, this facility has generated substantial forex inflows totalling USD 56,846 million across three categories: FCNR(B) deposits (USD 52,300 million), Overseas Foreign Currency Borrowings—OFCBs (USD 2,805 million), and External Commercial Borrowings—ECBs (USD 1,741 million). Due to the exceptional response, the RBI has now imposed a cut-off date of August 31, 2026, for mobilizing new FCNR(B) deposits under the Swap facility, though existing swaps can be availed till September 11, 2026. The schemes for ECBs and OFCBs continue until December 31, 2026.

Background & Legal Context

What is FCNR(B) and why does it matter?

FCNR(B) stands for Foreign Currency Non-Resident (Bank) deposits. These are savings accounts maintained by Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) in foreign currency (typically USD, GBP, EUR, or JPY) with authorized Indian banks. The RBI's Swap facility allows banks to swap these foreign currency inflows into rupees at a fixed exchange rate, thereby boosting India's forex reserves while providing attractive returns to NRI depositors.

Income Tax Act 2025 – Applicable Sections:

• Section 194LC (Interest on FCNR deposits): Interest earned on FCNR(B) deposits is subject to Tax Deducted at Source (TDS) at the rate of 20% under Section 194LC. However, NRIs with no Indian income may claim exemption if they furnish Form 6B or specify their income does not exceed the basic exemption limit.
• Section 115BAC (Concessional tax rate for NRIs): NRIs can opt for the concessional tax regime under Section 115BAC, which may provide relief depending on their total income and residential status.
• Section 89(1) (Foreign exchange fluctuation relief): Any loss arising from exchange rate fluctuations on FCNR deposits is deductible as per this section if the account is converted to rupees.
• Section 195 (TDS on foreign remittances): ECBs and OFCBs attract TDS on interest payments at applicable rates (typically 5% to 20% depending on the treaty and loan structure).
• Schedule 6 FEMA Compliance: All foreign currency borrowings by corporates must comply with RBI's Foreign Exchange Management Act (FEMA) guidelines and are subject to income tax under the ITA 2025.

Why This Matters Now (AY 2026-27):

For Assessment Year 2026-27 (Financial Year 2025-26), NRIs and corporates utilizing this facility must properly declare and report forex inflows. The CBDT (Central Board of Direct Taxes) expects all such inflows to be reported in ITR forms with proper documentation of TDS certificates and forex conversion details. Non-compliance can trigger tax notices under Section 142(1) or penalty under Section 271(1)(c).

What Does This Mean for You?

For Non-Resident Indians (NRIs):

• Interest Income Taxation: Interest earned on FCNR(B) deposits is taxable in India as per your residential status. If you are classified as a "resident" under the ITA 2025 (staying in India for 183+ days in the previous 4 years or having substantial economic interest), your entire FCNR interest is taxable in India at standard rates (slab or 30%). If you remain a "non-resident," interest is taxable only in the country of your residence, subject to India-Foreign tax treaties.
• TDS Compliance: Banks will deduct TDS at 20% on FCNR interest. Ensure you receive TDS certificates (Form 16A) to claim credit in your ITR. If your total income (including FCNR interest) is below the basic exemption limit of ₹2.5 lakhs (for individuals below 60 years), request the bank to issue Form 6B to avoid TDS deduction.
• Forex Gain/Loss: If you repatriate funds from FCNR to your home country, any exchange rate loss is deductible under Section 89(1) against other Indian income. However, exchange rate gains are taxable in India if you remain non-resident.
• Deadline Alert: Since FCNR(B) deposit mobilization ends on August 31, 2026, any NRI wishing to open a new FCNR account under this lucrative Swap facility must do so immediately. Deposits opened after this date will not be eligible for the facility's enhanced benefits.

For Indian Corporates (ECB and OFCB Borrowers):

• Interest Deduction: Under Section 36(1)(iii) of ITA 2025, interest on ECBs and OFCBs is fully deductible from gross total income, provided the borrowing is for business purposes and documented with proper approvals from RBI and the Ministry of Finance.
• TDS on Outbound Remittance: When your company remits interest payments to foreign lenders, TDS under Section 195 applies at rates ranging from 5% to 20% (depending on applicable tax treaties). Ensure you obtain valid tax residency certificates from the overseas lender to claim treaty relief at source (TRS).
• Extended Borrowing Window: Unlike FCNR(B) deposits (which close on August 31, 2026), ECBs and OFCBs remain open till December 31, 2026. Corporates requiring foreign currency financing can still avail this facility till year-end with RBI approval.
• Documentation for Income Tax: All ECB and OFCB agreements must be documented with ITR filings showing the principal amount, tenure, interest rate, and purpose of borrowing. The RBI's approval letter must be retained for compliance during income tax assessments.
• GST Considerations: Interest payments on ECBs and OFCBs are exempt from GST under the Financial Services category (as per GST Schedule), so no output tax credit issues arise.

What Should You Do Now?

Immediate Action Items (by August 31, 2026 for FCNR):

• NRIs: Contact your authorized dealer bank immediately if you intend to open a new FCNR(B) deposit. Clarify your residential status with the bank (submit Form 10F or Overseas Address proof) to ensure proper TDS treatment. Request the Swap facility quotation before the August 31 deadline.
• Corporates Seeking ECB/OFCB: If you haven't finalized your external commercial borrowing, initiate discussions with your foreign lenders and RBI now. The December 31, 2026 deadline provides a 4-month window. Engage your tax consultant to structure the borrowing tax-efficiently (e.g., timing of drawdown to optimize FY 2025-26 vs FY 2026-27 interest deduction).
• Document Preservation: Both NRIs and corporates must maintain comprehensive documentation: (a) bank statements showing FCNR credits, (b) TDS certificates and Form 16A, (c) RBI approval letters for ECB/OFCB, (d) loan agreements, (e) interest payment receipts, and (f) tax treaty certificates for cross-border transactions.
• ITR Filing (AY 2026-27): When filing your ITR for FY 2025-26, use Schedule FA (Foreign Assets) if you are an NRI with FCNR deposits. Corporates must disclose ECB/OFCB details in Schedule 6 (Foreign Income and Assets).
• Tax Planning: Consult your CA to evaluate whether claiming concessional tax under Section 115BAC (for NRIs) or structuring ECB interest deductions optimally can reduce your overall tax burden. Time your FCNR interest collection and repatriation strategically.

Key Takeaways

• FCNR(B) deposits under RBI's Swap facility must be mobilized by August 31, 2026; swaps can be availed till September 11, 2026. This is a time-sensitive opportunity for NRIs seeking favorable interest rates.
• Interest on FCNR deposits is subject to 20% TDS under Section 194LC; NRIs can claim exemption using Form 6B if total income is below ₹2.5 lakhs, or relief under tax treaties if non-resident.
• ECBs and OFCBs remain open till December 31, 2026; corporates can claim full interest deduction under Section 36(1)(iii) and apply TDS relief using treaty certificates under Section 195.
• Exchange rate losses on FCNR conversion are deductible under Section 89(1); gains are taxable. Plan repatriation timing carefully to optimize tax outcomes.
• All forex inflows must be properly documented and disclosed in ITR filings for AY 2026-27; failure to report attracts penalties under Section 271(1)(c). Engage a tax expert now to ensure compliance.

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