The resident individuals are permitted to make Rupee loan to their close relative who is a NRI/PIO. U/s 2(77) companies act 2013, ‘‘relative’’, with reference to any person, means anyone who is related to another, if (i) they are members of a Hindu Undivided Family; (ii) they are husband and wife; or(iii) one person is related to the other in such manner as may be prescribed below ;
Father (including step-father)
Mother (including step-mother
Son (including step-son)
Brother (including step-brothers)
Sister (including step-sisters)
As per FEMA act 1999 read with Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000 and RBI circular A.P. (DIR Series) Circular No. 64 dated February 4, 2004 (as amended from time to time), Such loans to NRI/PIO is permitted subject to following terms and conditions.
- The loan amount shall be within overall limit of USD 250000 per financial year as available to resident Indian under LRS scheme;
- No interest shall be charged on the loan amount;
- The minimum maturity of the loan cannot be less than one year;
- The loan shall be utilised for meeting the borrower’s personal requirements or for his own business purposes in India.
- The loan amount cannot be used for any of the activities in which investment by persons resident outside India is prohibited, viz. business of chit fund, or Nidhi Company, or agricultural or plantation activities or in real estate business*, or construction of farmhouses, or trading in Transferable Development Rights (TDRs). [* N.B: Real estate business quoted above does not include activities such as development of townships, construction of residential / commercial premises, roads or bridges].
- The loan proceeds shall not be used for investment or for on-lending in any manner whatsoever. However, RBI may permit these borrowers to use the amount so borrowed for on-lending to infrastructure sector or to keep them in fixed deposits with banks in India, pending utilisation for permissible end-uses.
- The loan amount may be paid by way of crossed cheque/ electronic transfer or same shall 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 amount shall not be remitted outside India.
- Repayment of loan shall be made 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.
Disclaimer: This post is prepared only for the purpose of general information and this is not a legal advice. The author has taken every effort to avoid errors or omissions in this article. The regulations related to loan by resident individuals to NRI/PIO are subject to regulatory amendments from time to time. Hence, in spite of due care taken by the author to avoid mistakes, it is possible that any mistake, errors, ambiguity, inconsistency, discrepancy may inadvertently creep up. Such mistakes or errors noticed by anyone may please be brought to the notice of the author for the rectification. The liability or claim of any nature on account of information provided here for whatsoever cause is not recognized.