Introduction:

Borrowing and lending between Non-Resident Indian (NRI) and Person resident in India is governed by Foreign Exchange Management Act, 1999 (FEMA).

Formerly, borrowing and lending in foreign exchange was governed by Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000 and borrowing and lending in Indian Rupees (INR) was governed by Foreign Exchange Management (Borrowing and Lending in Indian Rupees) Regulations, 2000 (“Erstwhile Regulations”).

However, in an attempt to simplify the provisions dealing with borrowing and lending in foreign exchange and Indian Rupees, the RBI had notified consolidated Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 (the Borrowing and Lending Regulation) on 17 December 2018.

Accordingly, the Borrowing and Lending Regulation supersedes:

·    Foreign Exchange Management (Borrowing and Lending in Indian Rupee) Regulations, 2000; and

·    Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000.

Keeping in mind the above, we shall now discuss below, the key provisions in respect of borrowing and lending (in INR and Forex) between NRI and Person resident in India:

Part A: Borrowing by NRI in INR:

NRI’s can borrow/raise INR sum of money from following persons, subject to terms and conditions specified therein:

a.   From Authorized Dealer:

1.  NRIs/OCI Cardholders can avail loan from banks in India in INR. The loan in INR may be utilized for the following purposes:

·     Meeting NRIs personal requirements; or

·     RIs business purposes; or

·     Acquisition of a residential accommodation in India (No limit on number of properties); or

·     Acquisition of motor vehicle in India; or

·    For any other purpose, which is not prohibited for NRI.

2.   Providing overdraft facility: The bank in India may provide overdraft facility to an NRI/OCI in INR for an amount up to INR 5 billion or any other amount as prescribed by the RBI. Such overdraft facility shall be granted by the overseas branch of the Indian bank.

b.   From his/her relative resident in India:

NRIs/OCI Cardholders may borrow INR loan of a sum not exceeding limit prescribed in LRS scheme (i.e. USD 2,50,000/- or its equivalent) from his/her Relative resident in India, subject to terms and conditions as specified by RBI from time to time in consultation with the Government of India.

The term “Relative” means and cover the following:

1.    Husband and wife

2.    Father (including step- father)

3.    Mother (including step-mother)

4.    Son (including step- son)

5.    Son’s wife

6.    Daughter

7.    Daughter’s husband

8.    Brother (including step- brother)

9.    Sister (including step-sister) 

c.   From registered NBFC/ registered housing finance institution:

NRIs/OCI Card holders may borrow INR housing or vehicle loan from registered NBFC/ registered housing finance institution or any other financial institution as specified by RBI subject to terms and conditions as prescribed by RBI from time to time.

d.   From his/her Indian Employer:

NRIs/OCI Cardholders may borrow INR loan of a sum from his/her Indian Employer in accordance with the Staff Welfare Scheme and subject to terms and conditions as specified by RBI from time to time in consultation with the Government of India.

Part B: Borrowing by NRI in Foreign Exchange:

NRI’s can borrow Foreig Loan by AD Bank from its branch outside India against NRE/FCNR FD– Branches outside India can extend foreign exchange loans against the security of funds held in NRE/FCNR account as specified by RBI. 

·   Further, borrowings by NRI from a Resident Individual in foreign exchange is generally not permissible. If required, NRI can obtain RBI approval before extending loan.

Part C: Borrowings by Resident Individuals in INR 

·      An individual resident can borrow in INR from a NRI or a Relative outside India who is OCI Cardholder, subject to terms and conditions as specified by RBI from time to time in consultation with the Government of India.  

·    Any person resident in India including Resident Individuals can take loans/overdraft facility against security of funds held in NRO/NRE/FCNR account held by NRI. However, the same is required to be in compliant with Foreign Exchange Management (Deposit) Regulations, 2016, under FEMA  

Part D: Borrowing by Resident Individual in Foreign Exchange:

·    A resident individual can borrow a sum not exceeding USD 2,50,000/- or its equivalent from his/her relative outside India, subject to terms and conditions as specified by RBI from time to time in consultation with the Government of India.

·     Further, a resident individual studying abroad, may raise a loan outside India not exceeding USD 250000/- or its equivalent or any other amount as decided by the RBI for the purpose of payment of education fees and maintenance.

Other key issues:

1.    Terms and conditions prescribed by RBI

At present, RBI has not come out with the terms and conditions applicable for above borrowing, unlike the terms and conditions given in the erstwhile Regulation. Hence, it may be important for one to seek professional guidance before entering into loan transaction.

2.    Restriction on utilization of borrowed funds:

All the borrowed funds (as listed above) shall not be utilized for any of the activities as listed below, in which investment by an NRI is restricted:

·       The business of chit fund, or

·       Nidhi Company, or

·       Capital market including margin trading and derivatives, or

·       Agricultural or plantation activities or

·       Real estate activity, or construction of farm houses, or

·     Trading in Transferable Development Rights.

 3.   Use of Credit card in India:

Use of Credit Card a) In India by an NRI or b) outside India by a Resident person shall not be deemed as borrowing or lending in INR/foreign exchange.

4.   Continuation of loan in the event of change in residential status of the NRI lender/borrower:

Where the residential status of the lender undergoes a change in a respective year, the RBI has given permission to the borrower to continue the loan and key provisions in this regard are as under:

·   AD Bank may allow continuance of loan granted to a resident individual who subsequently becomes a person resident outside India, subject to terms and conditions as specified by RBI from time to time.

·   In case a loan was granted by a RI to another RI and the resident lender subsequently becomes a person resident outside India, the repayment of loan by the RI borrower should be made by credit to the NRO account of the lender.

·   In case a loan was granted by a NRI/OCI to RI and the NRI/OCI lender subsequently becomes a resident, the repayment of the loan may be made to the designated account of the lender maintained with AD bank as specified by RBI from time to time, at the option of the lender.

·  Resident Individual is now permitted to service loan taken overseas earlier as person resident outside India, subject to specified terms and conditions.

5.    Borrowing under erstwhile Regulation: Can be continued as permitted up to the date of repayment.

6.    Repatriation of borrowed funds: Borrowed funds are not allowed to be repatriated outside India.

Conclusion:

In conclusion, borrowing and lending transactions between residents and non-residents are subject to strict regulations under FEMA. It is essential for individuals and business entities to be well-informed about the specific provisions and restrictions outlined by the RBI to ensure compliance with the law. Any violation of these regulations may lead to penalties, emphasizing the importance of adhering to the prescribed rules.

Borrowing and Lending between NRI and Resident Individual in any other manner other than above may require prior RBI approval before entering into the loan transaction. 

Further any borrowing from one NRI to another NRI in India is not governed under the above mentioned regulation. Accordingly due to lack of clarity one may consider to obtain RBI clarification/approval before entering into such transactions. 

                                                                                                                                                                                                                      - Updated 05/2024

ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY IN INDIA

The Foreign Exchange Management Act, 1999 (FEMA) and the Regulations notified by the Reserve Bank of India (RBI), regulates the acquisition and transfer of immovable property in India by Persons resident outside India.

A.    Acquisition of immovable property by NRI/OCI (No limit on number of properties) :

·     NRI/OCI can acquire immovable property in India without prior approval of RBI (under general permission) in the following manner:      

·   Further, NRI/OCI can transfer immovable property in India under general permission in the following manner:

·         The consideration to acquire/purchase the immovable property should be made out of the following:

a.    Foreign inward remittance

b.    Balances held in Non-Resident (Ordinary) account (NRO account)/Non-Resident (External) account (NRE account)/ Foreign Currency Non-Resident account (FCNR account)

c.    Housing loan can be availed from Authorised Dealer (AD) Bank or a housing finance institution in India.

·         The payments cannot be made either by traveller’s cheque or by foreign currency notes or by any other mode other than those specified above.

B.    Joint Acquisition by the spouse of an NRI/OCI:

Foreign national resident outside India, can acquire one immovable property (other than agricultural land/ farm house/ plantation property) jointly with spouse who is NRI or OCI, subject to below conditions:

·         The consideration is paid only through the modes specified above

·          The marriage has been registered and subsisted for continuous period of atleast 2 years

·          The non-resident spouse is not otherwise prohibited from such acquisition (see para E below)

C.    Acquisition by a Long-Term Visa holder:

A person who is citizen of Afghanistan, Bangladesh or Pakistan belonging to minority namely, Hindu, Sikh, Buddhist, Jain, Parsis and Christians and residing in India under Long Term Visa can acquire one residential house for self – occupation and one immovable property for carrying on self-employment, subject to specified conditions.

D.   Acquisition/Transfer by Foreign Embassies/Diplomats/Consulate Generals

Foreign Embassy/Diplomat/Consulate General, can purchase/sell immovable property (other than agricultural land/plantation property/farm house) in India provided:

·    Clearance from the Government of India, Ministry of External Affairs is obtained for such purchase/sale, and

·    The consideration for acquisition of immovable property in India is paid out of funds remitted from abroad through banking channels.

E.    Acquisition/Transfer by Foreign Nationals (other than OCI cardholder):

·         Foreign Nationals of 11 Countries:

Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong or Democratic People’s Republic of  Korea (DPRK),

a.    Irrespective of their residential status, cannot acquire or transfer immovable property in India, without prior RBI permission.

b.    However, they can acquire immovable property by way of lease, not exceeding five years. 

·         Foreign Nationals of other countries:

a.    Foreign nationals of non-Indian origin resident in India can acquire immovable property in India.

b.   Foreign nationals of non-Indian origin resident outside India cannot acquire/ transfer immovable property in India except by way of inheritance from a resident or by way of lease not exceeding five years.

F.    Acquisition of Immovable Property for carrying on permitted activity

A person resident outside India who has established branch in India can acquire immovable property which is necessary for or incidental to carry on such activity. The person resident outside India can also mortgage the said property.

Further, such person resident outside India has to file a declaration in Form IPI with the Reserve Bank within ninety days from the date of acquisition of immovable property;

However, person of 11 countries mentioned in point E above will require prior RBI permission if such property is to be acquired for period exceeding five years. 

1.    Exceptional Cases:

·         A person resident outside India can continue to hold, transfer any immovable property situated in India if such property was acquired, held or owned by him/her when he/she was resident in India or inherited from a person resident in India.

·   Any existing holding of immovable property in India by a person resident outside India made in accordance with the applicable regulation at the time of such acquisition would not require any further compliance/permission

2.    Typical Guidance:

·         NRIs/PIOs can remit the sale proceeds of immovable property in India subject to certain conditions and payment of applicable taxes.

·         Transfer of immovable property has to be routed through banking channels in India only. Direct payment from a Person resident outside India to another Person resident outside India is not permitted.

·         It is advisable to obtain Foreign Inward Remittance Certificate (FIRC) and documents evidencing repayment of loan in foreign exchange to facilitate smoother repatriation process at later stage.

·      There is no limit on the number of properties NRI/ OCI can acquire provided it is permissible as explained above 

                                                                                                                                                                                                      - Updated 01/2023  

A Non-Resident Indian (NRI) can open the following Bank accounts in India:

1.    Non Resident Ordinary Account (NRO A/c):

Any person resident outside India for putting through bonafide transactions in rupees is eligible to open NRO a/c in India.

However, individuals/ entities of Pakistan nationality/ origin and entities of Bangladesh origin will require prior approval of the Reserve Bank of India to open NRO a/c in India.

The key features of NRO a/c are as under:

·         The account is denominated in Indian Rupees

·         It can be opened and held in the form of savings, current, recurring, fixed deposits etc.

·         It can be jointly held with residents or other NRIs/ PIOs

·        A/c holder can avail loan facility in India for himself or in favour of third party, against the security of funds held in NRO a/c

·        The interest earned on NRO a/c is taxable in India as per Indian Income-tax laws.

·      Balances held in NRO a/c is repatriable to NRE or Overseas account upto USD One Million per Financial Year (subject to payment of applicable taxes) 

2.    Non-Resident External Account (NRE A/c):

NRIs and PIOs are eligible to open such a/c in India. The account should be opened by the non-resident account holder himself and not by the holder of the Power of Attorney in India.

The key features of NRE a/c are as under:

·         The account is denominated in Indian Rupees

·         It can be opened and held in the form of savings, current, recurring, fixed deposits etc.

·         It can be jointly held with other NRI(s) or a close relative who may be a resident

·         A/c holder can avail loan facility for himself or in favour of third party, in India and outside India, against the security of funds held in NRE account

·        The interest earned on NRE a/c is exempt from Tax as per Indian Income Tax laws. Hence, no tax is deducted at source on such interest earned.

·         Funds are freely repatriable outside India from such an account.

3.    Foreign Currency Non Resident (Bank) Account – FCNR (B) Account:

NRIs and PIOS are eligible to open and maintain FCNR (B) Deposit in India.

The key features of FCNR a/c are as under:

·    The account is denominated in any permitted currency i.e.  foreign currency which is freely convertible

·         It can only be opened only as Term Deposit with maturity of 1-5 years

·         It can be jointly held with other NRI(s) or a close relative who may be a resident

·       A/c holder can avail loan facility for himself or in favour of third party, in India and outside India, against the security of funds held in FCNR(B) a/c

·      Interest income from FCNR account is exempt as per Indian Income Tax laws in case of a person whose Residential Status under the Income Tax Act, 1961 is Non-Resident or Resident but not Ordinarily Resident

·        The funds are freely repatriable, without any restriction

                                                                                                                                                                                                 - Updated 01/2024