FCNR(B) Deposits ECB OFCB RBI Swap Facility 2026 Tax Reporting

What Happened?

The Reserve Bank of India announced a concessional swap facility on June 5, 2026, which became operational on June 8, 2026. This facility permits Indian businesses and financial institutions to mobilize foreign currency inflows through three channels: FCNR(B) deposits, External Commercial Borrowings (ECBs), and Overseas Foreign Currency Borrowings (OFCBs). As of July 31, 2026, the facility has attracted USD 40.816 billion in fresh forex inflows, comprising FCNR(B) deposits of USD 36.725 billion, OFCBs of USD 2.575 billion, and ECBs of USD 1.516 billion. The facility is available until September 30, 2026, for FCNR(B) deposits and December 31, 2026, for OFCBs and ECBs.

Background & Legal Context

Foreign currency borrowings and deposits are regulated under the Liberalized Remittance Scheme (LRS), Foreign Exchange Management Act (FEMA), and specific RBI guidelines. From an income tax perspective, these transactions fall under the purview of sections 2(f), 28, and 44AB of the Income Tax Act 2025.

• FCNR(B) Deposits: These are Foreign Currency Non-Resident (Bank) deposits offered by Indian banks to Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs). The interest earned on FCNR(B) deposits is taxable in the hands of the depositor as per residential status and applicable tax laws.
• External Commercial Borrowings (ECBs): These are foreign currency loans obtained by Indian companies from foreign lenders. ECBs are taxable events and the interest paid is deductible under section 44AB of the Income Tax Act 2025 (corresponding to old section 44AB, 1961), subject to conditions. The exchange gain or loss on ECBs is taxable as per section 2(f) of the new Act.
• Overseas Foreign Currency Borrowings (OFCBs): These are foreign currency borrowings mobilized overseas by Indian entities. Similar to ECBs, interest payments and exchange fluctuations have specific tax treatment under the Income Tax Act 2025.

Key Tax Provisions Applicable:

• Section 28 of IT Act 2025: Income from business and profession includes profit from exchange fluctuations on foreign currency transactions.
• Section 44AB (Maintenance of Books of Accounts): Any person carrying on business with foreign transactions must maintain detailed books of accounts distinguishing between Indian rupee transactions and foreign currency transactions.
• Section 92 (Transfer Pricing): If ECBs or OFCBs involve related parties, transfer pricing provisions may apply, particularly for interest rates and borrowing terms.
• Section 194LA (Tax Collection at Source on foreign remittances): Depending on the nature of payment, TCS may be applicable.

For Assessment Year 2026-27, any entity that has mobilized funds under the RBI Swap Facility must report these transactions accurately in their income tax returns (ITR), following the prescribed schedules and formats.

What Does This Mean for You?

For NRIs and Depositors: If you have invested in FCNR(B) deposits under this facility, the interest income is taxable based on your residential status. For NRIs, interest on FCNR(B) deposits is generally taxable at concessional rates under specific sections. However, this interest must be reported in your ITR for AY 2026-27 if your total income exceeds the basic exemption limit.

For Indian Companies Taking ECBs/OFCBs: The interest expense on these borrowings is deductible from your business income, but you must maintain separate records. The exchange gain or loss arising from fluctuations in foreign currency rates is treated as separate income or loss and must be reported in Schedule P (Profit and Loss) of your ITR. Many companies overlook exchange gains/losses—this is a common audit flag.

For Banks and Financial Institutions: Banks mobilizing FCNR(B) deposits must report the aggregate deposits and interest payable in their financial statements and income tax returns. The spread (difference between interest paid to depositors and interest earned from lending) is taxable income.

Compliance Requirements for AY 2026-27:

• All entities must file their ITR disclosing foreign currency borrowings, deposits, and related income/expense in the appropriate schedules.
• Schedule FA (Foreign Assets) in ITR Form 1 or 2 must disclose the location, nature, and value of foreign currency borrowings.
• If aggregate foreign transactions exceed thresholds, Form 3CEB (Audit Report) becomes mandatory under section 44AB.
• Exchange gains/losses must be segregated from operating profits and reported separately.
• The RBI Swap Facility does not exempt these transactions from tax reporting—it only provides a borrowing mechanism at concessional rates.

GST Angle: The swap facility itself does not attract GST as it is a monetary transaction. However, if ancillary services (advisory, documentation, processing) are provided, they may attract GST at 18% under the taxable supply provisions.

What Should You Do Now?

Step 1: Document Your Transactions — Maintain detailed records of all FCNR(B) deposits, ECBs, and OFCBs mobilized under the RBI facility, including dates, amounts, interest rates, and corresponding rupee conversions.

Step 2: Track Exchange Gains/Losses — Create a separate ledger for foreign currency transactions and monitor exchange rate fluctuations. Mark these gains/losses clearly as they have different tax treatment than regular business income.

Step 3: Update Your Audit Checklist — If your borrowings trigger the Form 3CEB audit requirement, coordinate with your auditor early. The auditor must specifically mention compliance with section 44AB regarding foreign currency transactions.

Step 4: File Accurate ITR for AY 2026-27 — Do not lump foreign currency income/expense with regular business income. Use Schedule P and other relevant schedules to segregate and report these transactions clearly.

Step 5: Maintain FEMA Compliance — Alongside income tax, ensure you comply with FEMA regulations and RBI guidelines for these borrowings. The RBI Swap Facility operates within FEMA framework, and non-compliance can trigger notices beyond tax authorities.

Key Takeaways

• USD 40.816 billion mobilized till July 31, 2026 under RBI's concessional swap facility for FCNR(B), ECBs, and OFCBs—the largest component is FCNR(B) deposits at USD 36.725 billion.
• Interest income on FCNR(B) deposits is taxable based on residential status; NRIs must report in their ITR even if earning below basic exemption in India.
• Exchange gains/losses on ECBs and OFCBs are taxable as separate business income/loss and commonly missed in ITR filings—ensure segregation in Schedule P.
• Form 3CEB (Audit Report) is mandatory if your foreign currency transactions exceed prescribed thresholds; coordinate with auditors early to avoid last-minute compliance gaps.
• The RBI Swap Facility is not a tax holiday—it only provides a borrowing mechanism. All tax reporting, exchange tracking, and FEMA compliance remain mandatory for AY 2026-27 onwards.

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