Archive · 31 Jul 2026
Singapore Tax Clarification Affects Leveraged FCNR Deposit Returns
Singapore tax rules say that if a person in Singapore borrows money from an Indian bank and then puts that money into a special foreign deposit, the interest they earn is treated as coming from Singapore.
Because of this, the government takes a 10% tax on that interest.
Even if the interest is used to pay back the loan, the tax still applies.
If people don’t follow the rules, they could be fined an extra 20%.
This rule can make big loans that use a lot of borrowed money less profitable.
Even with this tax, a lot of money is still being put into these foreign deposits, and experts think it could help India’s balance of payments in the future.
IRAS clarified that interest paid by Singapore tax residents on loans from Indian banks is sourced in Singapore and subject to withholding tax.
Under the India‑Singapore DTAA, withholding tax is generally 10% of gross interest unless paid to the Singapore branch of the Indian bank.
The tax applies even when loan interest is offset against deposit earnings, and non‑compliance can incur a 20% penalty.
Leveraged FCNR products, where borrowers use 9‑19× leverage, could see reduced or negative returns due to the withholding tax.
Despite tax concerns, FCNR(B) deposits have mobilised over $26 billion, with SBI Research projecting $65‑70 billion by the RBI window close.
- Who
- Singapore tax residents borrowing from Indian banks
- What
- Interest on such loans is sourced in Singapore and subject to withholding tax
- When
- Clarification issued recently (as of the report)
- Where
- Singapore and India
- Why
- To enforce tax compliance under the India‑Singapore DTAA
- Authority
- Inland Revenue Authority of Singapore (IRAS)
- Tax Type
- Withholding tax on interest
- Applicable Rate
- 10% of gross interest under DTAA
- Leverage Range
- 9x to 19x for leveraged FCNR products
- FCNR(B) Inflows (as of July 17)
- $20.7 billion
- Projected FCNR(B) Mobilisation
- $65‑70 billion
- Penalty for Non‑Compliance
- 20% additional tax