Loan from nri friend-fema

29 August 2016

Dear All,

Can anyone suggest whether an Indian resident taken loan from NRI friend(not relative) as per FEMA ?? if allowable section details

What are the consequences for violations of FEMA if loan from NRI friend is prohibited.

Thanks in advance

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Abhinav (CA) (397 Points)
Replied 25 January 2017

Refer Reg. 4 of FEM (Borrowing and Lending in Indian Rupees) Regulations, 2000

A resident can borrow from a NRI non-relative subject to following conditions:

Receipt of loan shall be on a non-repatriation basis - money will first come in NRO account and interest/principal repayment by resident shall be to NRO account only - this money cannot be repatriated out of India
period of loan should not exceed 3 years
rate of interest cannot exceed 2 percentage points over prevailing bank rate

It is advisable that a proper loan agreeemnt on the above lines are drawn up to evidence the transaction.