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Can I take loan from abroad???

Vinay Arora (Executive-Finance & Accounts) (24 Points)

14 October 2009

Can anyone please let me know whether I can take a loan of Rs. 500,000/- from my uncle (own mama) who stays in USA. My uncle will be taking a loan in his name in the US and transfer the same to my account here in India. I will then be repaying the EMI's in his Indian bank account from where he will transfer the money in his US account and pay the lending bank. What would be the tax implications for me and is it allowed to conduct such transactions???

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6 Replies

praveen (Chartered Accountant) (6971 Points)
Replied 14 October 2009

you can take loan but you have to deduct TDS on interest otherwise such amount will not be allowed as deduction in your hands.

Correct me if I am wrong.

Sunil (Trader) (2611 Points)
Replied 14 October 2009

Praveen, you are right about TDS. However you are making payment to a NON-RESIDENT. Therefore I think Section 195 will apply. Better check from the Bank if you can credit the account by Payee's A/C cheque into the NRIs account. There are some restriction on what payments can be deposited in NRI (E) or NRI (O) type accounts.

If the NRI can use his account with a local bank to pay you money or credit your repayments in Indian Rupees, Better to take Loan By Payee's A/c Cheque from the NRI's account in India and pay interest or repayments by Payee's account cheques. Do not use NEFT or RTGS as they are not acceptable modes for section 269SS or Section 269T. If the NRI has an address in India, deduct interest u/s 194A as usual. In case you are ever called for scrutiny, your NRI uncle will have to vouch for you and establish his source of lendable funds.

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 15 October 2009

Dear Vinay/Praveen/Sunil Sir,

I think for the proposed transaction you also need to refer FEMA;

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

Borrowing in rupees by persons other than companies in India.

4. A person resident in India, not being a company incorporated in India, may borrow in rupees on non-repatriation basis from a non-resident Indian or a person of Indian origin resident outside India, subject to the following conditions :

(i) the amount of loan shall be received by way of inward remittance from outside India or out of Non-resident External (NRE)/Non-resident Ordinary (NRO)/Foreign Currency Non-resident (FCNR)/Non-resident Non-repatriable (NRNR)/Non-resident Special Rupee (NRSR) account of the lender maintained with an authorised dealer or an authorised bank in India;

(ii) the period of loan shall not exceed three years;

(iii) the rate of interest on the loan shall not exceed two percentage points over the Bank rate prevailing on the date of availment of loan;

(iv) where the loan is made out of funds held in Non-resident Special Rupee (NRSR) account of the lender, payment of interest and repayment of loan shall be made by credit to that account; and in other cases, payment of interest and repayment of loan shall be made by credit to the lender’s Non-resident Ordinary (NRO) or Non-resident Special Rupee (NRSR) account as desired by the lender; and

(v) the amount borrowed shall not be allowed to be repatriated outside India.

However, you may note that for paying Interest/depositing/Remiting outside India you/your uncle needs to follow hectic procedure of Form 15CA/CB along with form A2 and other declaration u/s. 195 read with rule 37BB for every remittance and for obtaining/furnishing such info/documents attract procedural cost. By doing Cost-Benefit anlysis I think it is impractical to go for the transaction as your loan amount is not huge.

You may be attracted to this transaction coz of lower rate of interest but I bet that, if you are going for said transaction you will gonna loose more of your money.

Thanks

CA Lovenish Bansal (JOB) (343 Points)
Replied 15 October 2009

Thanks for this information

Regd

Lovenish Bansal

CA Sumit Tayal (Chartered Accountant) (158 Points)
Replied 24 October 2009

Thanx

RANA SODHI (Others) (21 Points)
Replied 30 July 2015

I my wife and my mother is resident indians having accounts in singapore. can we take or give loan to and from each other in these accounts? if yes is there any limit of the amount?