Home / Money / Ask-mint-money /  Interest income from FCNR exempt for NRIs, RNORs

If I make a deposit under the premium rupee plan (PRP) in a bank, they usually debit money from our NRE (non-resident external) accounts and buy equivalent amount of forex, and make FCNR (foreign currency non-resident) deposit for, say, five years. The interest earned this way is around 3.5%. How will taxation apply if I become a resident after 1-2 years, and given this instrument will mature five years from now?

—Name withheld on request

The Reserve Bank of India (RBI) regulations require that you intimate change in your residential status to the bank where you hold an NRE or FCNR account. Upon change of your residential status from NRI to resident, the interest income earned from an FCNR deposit shall become taxable.

Interest earned from FCNR account continues to be exempt so long as you are NRI or resident but not ordinarily resident (RNOR), as per the income tax law. You must check your residential status for each financial year immediately after your return and pay tax on the interest income from FCNR deposits, in case you become a resident in India for income tax purposes.

The interest income is spread over five years. As for offering the income to tax, you can opt for accrual or cash basis. Once you become a resident of India and choose to offer income on cash basis, the entire interest component that you receive must be offered to tax in the year of maturity (provided you qualify as a resident). If you have chosen to offer your income on accrual basis, the interest pertaining to the year in which the instrument matures alone needs to be offered to tax.

I worked in the US for eight years, out of which I was with my current employer for four years. I moved to India this year in the same company. I am an Indian citizen. In my company’s records, my joining date is February 2014. After moving to India, I have been contributing for my Employees’ Provident Fund or EPF, with my company also putting in its share. If I quit before I finish five years of EPF contribution (though I would have worked for five years with the employer), what would be the status of my EPF?


You need to identify from your employment records, the date on which you became member of the EPF scheme and started making contributions to EPF. The period of five years shall be calculated from this date.

One may choose to withdraw EPF completely or partially. EPF can be completely withdrawn under any of the following circumstances: a) When an individual retires from employment; b) When an individual remains unemployed for two months or more. Complete withdrawal of EPF while switching over from one job to another without remaining unemployed for 2 months or more i.e. during the interim period between two jobs is not allowed as per PF rules. Partial withdrawal of EPF can be done under certain circumstances such as, for the purpose of marriage, education, etc. subject to prescribed conditions.

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Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at

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