If a person is Not Ordinary Resident in India the interest on FCNR deposits are exempt from tax till he or she is Not Ordinary Resident.
Question
If a person does FCNR Deposit when he is Non Resident say 100000 US Dollars for 5 years and the maturity amount is say 125000 USD. The person does a Forward Sale Agreement and sells the maturity amount of USD 125000 on date of deposit itself with forward rate of 1 USD = 80 INR so the person will get INR 1 crore on matuity.
If person continues to be NRI after 5 years also the amount is not taxable at all.
If person moves back to India for good in year 4 he is Not Ordinary Resident for 3 years and in which case FCNR interest is not taxable. However in this case the matutity amount is sold with forward contract on date of deposit so is that amount taxable when person is Not Oridinary Resident.
