FCNR scheme: Withholding tax fear haunts US, Singapore NRIs

US and Singapore NRI investors using leveraged FCNR deposits face a 10% withholding tax on loan interest paid to Indian banks, raising effective borrowing costs. US-based NRIs additionally face a 30% withholding tax, a 3.8% net investment income tax on the tax-free FCNR interest in India, and reporting obligations including FBAR and Form 8938. Several large and mid-sized Indian banks, particularly state-owned lenders, are using their GIFT City branches to extend this leverage and some have shifted the withholding tax burden onto borrowers.