What is an FCNR account and how is it different from NRE?
Both are accounts for a person living outside India, and the difference is the currency the money is held in. An NRE balance is held in rupees, so its value in your own currency moves with the exchange rate whatever the interest rate looks like. An FCNR deposit is held in a foreign currency, so that exchange exposure sits outside the deposit. For someone who will eventually want the money back in the currency they spend, that is the whole point of it. The tax and repatriation treatment is a separate question and does not follow automatically from the currency.
Is FCNR interest taxable in India?
The exemption people rely on is attached to non-residence under the exchange-control law, not to the tax return, so it lasts exactly as long as that status does. Two things follow. When the status changes the treatment changes with it, and the date of that change is the fact that matters rather than the year end. And an exemption in India is not an exemption anywhere else: the country you live in taxes residents on worldwide income and does not adopt India’s treatment. Interest India does not tax is still income at home, and still an account that has to be reported there.
Do I pay tax at home on an FCNR deposit?
Almost certainly on the interest, and you are also likely to have a reporting obligation for the account itself. The reporting tests in Canada and the United States look at foreign accounts and what they hold. They do not ask whether the income was taxed abroad. FCNR deposits are missed more often than most, because the holder thinks of them as savings rather than as something producing income, and because the Indian side generates no paperwork to prompt a memory. Interest accrues in a foreign currency and has to be brought into the home return in the home currency for each year.
What happens to my FCNR deposit if I move back to India?
The deposit and the operating accounts are separate questions and are dealt with separately. A term deposit already running is not in the same position as an account you keep using, and neither is well served by leaving the bank uninformed. What actually decides the outcome is the date your status changed and what the deposit’s own terms say about running on. We fix the date first, then apply it to the deposit, to the accounts and to the return for the year of return, so that all three tell the same story.
Can I take an FCNR deposit out of India when it matures?
That is what the account type contemplates, which is why the origin of the money going in matters more than anything you do at maturity. A deposit funded from abroad in foreign currency is the clean case. Where the funding came from Indian sources, or where the deposit was built out of a balance of mixed character, the bank has to work out what it is holding before it can release it. Maturity is the wrong moment to discover that. Establish the origin when the deposit is made, and keep the advices that show it.
Should I report an FCNR deposit on my foreign asset disclosure?
Report it, and settle the finer analysis afterwards rather than the other way round. Foreign account and asset reporting in Canada and the United States is triggered by holding the account, not by whether it produced taxable income, and the consequences of a missed report attach to the failure itself rather than to any tax. A deposit held quietly for years in a foreign currency is precisely the item that gets overlooked. Where it has been overlooked, the open years are dealt with through the disclosure route appropriate to your country of residence, before a notice arrives rather than after.
I work remotely from another country for a company back home — who taxes me?
Usually the country you are physically in, because employment income is generally sourced where the work is done, with your residence country taxing it as well if you are resident there and giving credit. Three things follow: your employer may acquire withholding and social security obligations where you sit, a treaty tie-breaker may be needed if both countries call you resident, and a short trip that becomes a long stay can cross a residence threshold nobody was watching. See remote workers and digital nomads.
Branch or subsidiary — which should we use to expand?
A branch keeps one taxpayer: results consolidate at home, losses are usable sooner, and the exposure is that the branch is a permanent establishment whose profit the host country taxes, sometimes with a branch tax on repatriation. A subsidiary is a separate taxpayer with limited liability and local rates, at the cost of withholding on dividends home and transfer pricing on everything between them. The deciding facts are usually expected losses, liability and exit plans. See branch against subsidiary.
