Purpose of NRI Borrowing from Resident Indian

Varun Hariharan

23 Nov, 2020

NRIs may consider borrowing from a resident Indian due to various factors. This can be the rate of interest which is payable on the amount of loan borrowed from the resident Indian or the Indian Company.  There have to be certain compliances adhered by the NRI who is borrowing money.

Whenever NRI Borrowing from a resident Indian/ company is considered, then there are specific compliances which need to be followed as per the Reserve Bank of India.

Who Regulates NRI Borrowing from a Resident Indian/ Indian Company

NRI borrowing from a resident Indian is regulated by the following:

• Reserve Bank of India (RBI).
• Lending and borrowing is also regulated by the Ministry of Finance.
• Foreign Exchange Management (Borrowing or lending in foreign exchange) Regulations, 2000.

Eligibility criteria for NRI Borrowing from Resident Indian / Indian Company 

• The Individual receiving the funds has to be an NRI.
• NRIs are permitted to borrow funds from an Indian Company.
• The Resident Indian who is providing the funds has to be relative in some way to the NRI.
• The funds must be used for permitted activities.
• The ceiling limit of funds must be kept in mind for NRI Borrowings from resident Indian.
• There has to be no form of rate of interest on the loan.

Process / Procedure of NRI borrowing from Resident Indian / Company

Resident Individual grants INR loan to NRI, i.e. the NRI borrows money from the resident individual:

A resident individual may grant INR loan to an NRI relative by way of crossed cheque/electronic transfer subject to the following terms and conditions:

• The loan is free of interest, and the minimum maturity of the loan is one year;
• The loan amount should be within the overall limit under the Liberalized Remittance Scheme per financial year available for a resident individual, who shall ensure that the applicable limit is not breached;
• Under the liberalized remittance scheme of the RBI the maximum amount that an individual can remit is upto USD 250000;
• The utilization of loans shall meet the provisions given at above;
• The loan amount shall not be remitted outside India but shall be credited to the NRO account of the borrower.
• Repayment of loan shall be made by way of inward remittances from outside India or by debit to the NRO/NRE/FCNR (B) 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 proceeds of the loan that is granted to the NRI from the resident individual shall be only used for the following purposes:

• The proceeds shall be utilized only for the own business of the borrower. Additionally, construction of farm houses will also not be permitted. This restriction on real estate does not include:

1. Development of townships,
2. Construction of residential/ commercial premises,
3.  Development of roads,
4. Bridges.

• The proceeds shall not be used for investment or on-lending in any manner whatsoever.
• The Reserve Bank may, however, permit these borrowers to use the amount so borrowed for on-lending to certain sectors or keep in the banks as fixed deposits in India to meet certain requirements of end-use.

Company grants INR Loan to NRI/PIO Employees, i.e. the NRI borrow money from the company:

A body corporate is defined under the Companies Act 2013 and previous Company Law 1956.

A body corporate registered or incorporated in India may grant rupee loan to its NRI/PIO employees subject to the following terms and conditions:

1. The loan shall be granted only purchasing a property in India.
2. The loan shall be granted under the lender’s Staff Welfare Scheme/Staff Housing Loan Scheme.
3. The proceeds shall be utilized only for the own business of the borrower. Additionally, construction of farm houses will also not be permitted. This restriction does not include the development of townships, construction of residential/ commercial premises, roads, or bridges.
4. The proceeds shall not be used for investment or on-lending.
5. The Reserve Bank may, however, permit these borrowers to use the amount so borrowed for on-lending to certain sectors or keep in the banks as fixed deposits in India to meet certain requirements of end-use.
6. The lender shall transfer the amount to the borrowers NRO account or shall ensure credit to such account by specific indication on the payment instrument.
7. The repayment of loan shall be made only by way of remittance from outside India or from NRE/NRO/FCNR (B) account of the borrower and by no other source. This condition shall be inbuilt in the loan agreement.

Documents required for NRI Borrowing from Resident Indian

The documents required for NRI Borrowing from a Resident Indian/ Company:

• For remitting funds overseas a Form A2
• Chartered Accountant’s certificate in Form 15CB
• self-declaration in Form 15CA are required to be furnished to the bank, confirming that applicable taxes have been deducted and deposited into the government treasury
• KYC Documentation.

How can Enterslice help- NRI Borrowing from a Resident Indian/ Indian Company

• We can provide advice on NRI Borrowing from Resident Indian/ Indian Company.
• Advice on the permitted activities which the borrowed money can be used.
• We will also assist you with regulatory compliance with RBI.
• We value your time and money.
• We offer post-compliance-based services.