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Borrowing from a Non Resident or Person of Indian Origin
You are an individual running your proprietorship concern, or partnership or LLP? Have a relative or friend abroad who is willing to help you with a loan to run your business? What are the FEMA regulations governing loans from Non Residents? Can you take a loan in forex or in INR? What should be the interest and repayment terms? These questions are bothering you? Let’s unravel them for you!
In Rupees:
For starters, the RBI permits you to borrow in Rupees from a Non Resident Indian and an OCI (Overseas Citizen of India).
The loan should come by way of inward remittance or from the lender’s NRE/NRO/NRE/FCNR/NRNR/NRSR accounts. The term of the loan shall not exceed 3 years and the interest thereon is linked to bank rate and cannot exceed 2 percentage points more than the bank rate. The bank rate is the rate at which RBI lends to Banks!
There are some restrictions on end use! You can’t use it to fund your proprietary businesses or receive it in your partnership firm or LLP if they fall under Chit fund business, or Nidhi Company business or for agricultural or plantation activities or real estate business (trading in real estate), or for construction of form houses; or for trading in development rights. These are sensitive sectors and hence the RBI does not want foreign funds to enter these businesses as loans!
You cannot use such borrowed funds for investment in company or partnership firm – the monies can come into the entities directly though) or on-lending except on-lending to infrastructural sectors or for parking in fixed deposits pending utilization for approved end-uses! The principal repayment and interest payments are non-repatriable and to be deposited into the NRO account fo the lender.
In foreign exchange:
As far as borrowing in foreign exchange is concerned, an individual resident in India may borrow a sum not exceeding USD 250,000/- or its equivalent, or any other amount as decided by the Reserve Bank from time to time, from a relative outside India and subject to such terms and conditions as specified by the Reserve Bank from time to time in consultation with the Government of India.
An individual resident in India studying abroad may raise loan outside India not exceeding USD 250,000/- or its equivalent, or any other amount as decided by the Reserve Bank from time to time, for the purposes of payment of education fees abroad and maintenance subject to terms and conditions as specified by the Reserve Bank from time to time in consultation with the Government of India.