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borrowing and lending for an nri customer important points to remember

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As an NRI there are a host of complex conditions and regulations under FEMA (Foreign Exchange management Act) that govern transactions that you undertake.

As an NRI you also have family back in India who may need money or from whom you borrow money for a short term. If that is the case, this article will try and explain a few basic details that you need to keep in mind before lending to or borrowing from a relative in India.

Lending to a Close Relative

FEMA allows an NRI to lend to a close relative. Now a close relative is defined by the Companies Act (1956). As per this, the

Meaning of "relative" is defined as under.

A person shall be deemed to be a relative of another if, and only if,-


(a) they are members of a Hindu undivided family; or


(b) they are husband/wife; or


(c) the person is related to the other in the manner indicated in Schedule I A


Schedule IA specifies close relatives as under


1. Father 2. Mother (including step mother) 3. Son (including step son) 4. Son’s wife 5. Daughter (including step daughter) 6. Father’s father 7. Father’s mother 8. Mother’s mother 9. Mother’s father 10. Son’s son 11. Son’s son’s wife 12. Son’s daughter 13. Son’s daughter’s husband 14. Daughter’s husband 15. Daughter’s son 16. Daughter’s son’s wife 17. Daughter’s daughter 18. Daughter’s daughter’s husband 19. Brother (including step brother) 20. Brother’s wife 21. Sister (including step sister) 22. Sister’s husband



An NRI can lend to a close relative (as per the definition above) upto $ 250,000 in a financial year on a repatriable basis. Here repatriable means that you can take this money overseas back to your accounts or move the funds into an NRE or FCNR (B) account.

However there are certain terms and conditions



The minimum tenure for which the loan has been given has to be atleast 1 year. A loan given for a period of less than a year will not qualify. You may need to provide bank statements which evidence the transfer of money from you to your close relative to validate this



It has to be interest free. This means that only the money that you give your relative can come back to you. No interest can be levied under FEMA for the loan that you provide.



The money should have come in from overseas remittances or from the NRI customers FCNR (B) or NRE accounts. Only the money which has come from overseas can go back.


Also it is important to note, that the account to which the money has been transferred should be of an INDIVIDUAL Resident and not a business or proprietorship account.

Only if all of these three conditions are fulfilled, the money can be credited back to the customer NRE accounts and/or remitted to his overseas accounts.


Borrowing by an NRI

An individual resident Indian can lend upto $ 200,000 in a financial year to a Non-resident Indian. A

n individual resident can lend money by way of crossed cheque /electronic transfer within the overall limit of USD 200,000 per financial year under the Liberalised Remittance Scheme, to meet the borrower’s personal or business requirements in India.

The conditions here are that the loan should be interest free and have a maturity of minimum one year and cannot be remitted outside India.

This means that the loan that is given by the resident Indian will need to be credited to the NRO accounts of the NRI and also, this is provided on a non-repatriable basis hence can be used only for his/her India requirements for personal or business purposes. This money cannot go overseas.

Repayment of Loans of an NRI by a Resident Indian

If an NRI has taken a loan from an authorised dealer (Bank), then this can also be repaid by a close relative of the NRI. The prepayment will be done by crediting the NRI (borrowers) loan account through the bank account of the close relative.

About the Author:

Daisy Fernandes is a personal finance enthusiast who is also pursuing her Certification in Financial Planning

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