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Loan in Rupee to Non Residents

“A NRI can take rupee loan from authorized dealers in India for purchase of immovable property, namely residential houses, own business needs or to purchase shares under ESOP.”

“A NRI can take rupee loan from a person resident in India who is his relative subject to limits prescribed under LRS and the loan being interest free and repayable within 1 year”

The Foreign Exchange Management Act, 1999 has empowered the Reserve Bank of India in consultation with Central Government to specify permissible capital account transaction and their monetary limits admissible. In exercise of this power given under Section 6 of the Act, the RBI has notified Foreign Exchange Management (Borrowing and Lending in Rupee) Regulations 2000 to regulate borrowing and lending in Rupee.

Loan from Banks

An authorized dealer (mostly Banks) is permitted to give rupee loan to Non-Resident Indian (NRI) ;

  1. against security of shares/ other securities held in the name of the borrower

  2. against security of immovable property (other than agricultural or plantation property or farm house) held by him in accordance with Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulation 2000

  3. for any other purpose approved by loan policy of the board of directors of the authorized dealer

  4. being employee of Indian companies for acquiring shares of such companies under ESOP scheme, upto 90% of the purchase price of the shares or 20 lakhs per employee whichever is lower

However, the loan shall be used for his personal or business needs and shall not be used in any manner associated with businesses which is prohibited for a person resident outside India namely, chit funds, real estate, agriculture or plantation, farm house, trading in Transferable Development rights (TDRs) etc…

Housing Loan for NRI from Banks and corporate

A NRI or PIO can obtain loan from authorized dealers or housing finance institution (approved by National Housing Bank) for acquisition of residential accommodation in India, however loan for real estate business is prohibited.  The terms of such loan should be at par with those applicable to housing finance provided to residents. The loan shall be fully secured by equitable mortgage of the property to be acquired.

A body corporate registered in India may grant rupee loan to its employee who is a NRI/PIO for personal purpose including purchase of house property in India in accordance with its staff loan policy

All such loan shall be credited to NRO account of the borrower and shall in no case be remitted outside India. The repayment may be made out of remittance from outside India, or debit to NRE/NRO/FCNR accounts of the borrower, or sale of security/immovable property against which loan was granted.

The housing loan may also be repaid by any relative in India through his bank account from 25th May 2004

Loan to NRI by a Resident Relative w.e.f 16.09.2011

A Resident individual may grant loans to NRI who is a relative by crossed cheque/bank transfer. Such loans should be interest free and should be repaid within 1 year. The loan amount should be within the overall ceiling under Liberalized Remittance Scheme per financial year for an individual. The loan maybe for the borrower’s personal requirement or for his own business purposes in India.

CA. Roshan Thomas

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