Brief
Mr. X (Indian National) has received Rs. 30 lacs from his Sister’ son (NRI) by electronic transfer in April 2011.
The amount has been received to enable Mr. X to purchase a property.
Please note that his relationship with his Sister’ son doesn’t fall within the meaning of Close relatives as mentioned in Schedule 1A of Companies Act, 1956.
(I) the Amount cannot be treated as gift (implication of 56(2) of Income tax Act)
(II) If considered as a loan, it has to be repaid after 3 years. (Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000)
(III) It is evident to note that no support has been provided / furnished to the bank at the time of of remittance.
Query
Can the loan from NRI (other than close relatives) be taken @ 0 %.
It is being suggested to repay the amount as soon as possible to the lender, being Mr. X would not be in position to repay the amount in next 5 years.
Further after 2-3 months, Sister son will gift the money to her mother ( Mr. X Sister). Further she will give the amount as gift to her brother (Mr. X).
Please give your comments on the same.
Relevant extract from RBI guidelines/ Companies is enclosed below
As per RBI Guidelines : Can an individual resident Indian borrow money from his close relatives outside India?
Yes, an individual resident Indian can borrow sum not exceeding USD 250,000 or its equivalent from his close relatives staying outside India, subject to the conditions that:
1. the minimum maturity period of the loan is one year;
2. the loan is free of interest; and
3. the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR(B) account of the NRI.
Close Relatives
'Close relative' means relative as defined in Section 6 of the Companies Act, 1956.
Section 6 of the Companies Act, 1956
[Meaning of “relative”.
6. 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 and wife; or
(c) the one is related to the other in the manner indicated in Schedule IA.]
Schedule IA
LIST OF RELATIVES
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1.
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Father.
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2.
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Mother (including step-mother).
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3.
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Son (including step-son).
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4.
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Son’s wife.
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5.
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Daughter (including step-daughter).
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6.
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Father’s father.
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7.
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Father’s mother.
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8.
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Mother’s mother.
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9.
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Mother’s father.
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10.
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Son’s son.
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11.
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Son’s son’s wife.
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12.
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Son’s daughter.
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13.
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Son’s daughter’s husband.
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14.
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Daughter’s husband.
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15.
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Daughter’s son.
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16.
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Daughter’s son’s wife.
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17.
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Daughter’s daughter.
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18.
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Daughter’s daughter’s husband.
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19.
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Brother (including step-brother).
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20.
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Brother’s wife.
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21.
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Sister (including step-sister).
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22.
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Sister’s husband.
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Further according to Foreign Exchange Management (Borrowing and lending in rupees) Regulations, 2000
Borrowing in rupees by persons other than companies in India:-
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.
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