A resident individual is permitted to make a rupee loan to an NRI/PIO who is a close relative of the resident individual (‘relative’ as defined in Section 2(77) of the Companies Act, 2013 by way of crossed cheque/ electronic transfer subject to the following conditions:
- The loan amount shall be within LSR limit of USD 250000 or equivalent in other foreign currencies in a financial year (April to March).
- The loan so provided should be interest free and the minimum maturity period of the loan is one year.
- The loan provided shall be utilized for meeting the borrower’s personal requirements or for his own business purposes in India. The loan amount cannot be remitted outside India.
- The loan amount cannot be utilized either singly or in association with other person, for any of the activities in which investment by persons resident outside India is prohibited, namely; (i) the business of chit fund, or (ii) Nidhi Company, or (iii) agricultural or plantation activities or in real estate business*, or construction of farmhouses, or (iv) trading in Transferable Development Rights (TDRs).
- The loan amount should be credited to the NRO a/c of the NRI /PIO. Credit of such loan amount may be treated as an eligible credit to NRO a/c.
- The loan shall be repaid only by way of inward remittances through normal banking channels or by debit to the Non-resident Ordinary (NRO)/ Non-resident External (NRE) / Foreign Currency Non-resident (FCNR) account of the borrower or out of the sale proceeds of the shares or securities or immovable property against which such loan was granted.
[*The real estate business mentioned above shall not include the development of townships, construction of residential/commercial premises, roads, or bridges.]