Loan by NRI/PIO to Indian relative resident

[Vinay Sharma]

An NRI/PIO located at USA has made payment of ₹ 6 Lacs thru his debit card, directly to the account of car sellers for purchase of a car which is purchased in the name of his his real brother in India. The understanding is that this a interest free Loan to the Indian Brother and he will repay this loan by way of deposit of small amounts as per his convenience to his NRE/NRO accounts in India.

Queries

1- Should they sign a formal loan agreement for this purpose.

2- Any RBI or other approval required for entering into such transaction.

3- Is there any income tax obligation on any of the brothers.

4- Can the Indian brother deposit repayments into NRE account of the NRI/PIO

5- Can the USA brother repatriate this amount.

[kalyanaraman Venkatraman]

Please find my opinion as below

Please refer Regulation 4 of FEMA Borrowing and Lending in Rupees Regulations 2000.

1. The amount should be received by way of inward remittance or debit to NRO, NRE or FCNR account, there is no provision to make payment directly through credit or debit card. also refer Sec 3 of FEMA

2. The period of Loan should not exceed three years and interest should not exceed 2.00% over the prevailing Bank Rate.

3. The amount should not be allowed to repatriated. However you can repay the amount to his NRO account and the same can be repatriated under 1.00 Million route under FEMA remittance of assets regulations.

Thanks

AI Summary

FEMA remittance rules restrict outward payments and set conditions for NRI loans to resident relatives, limiting repatriation. Regulation 4 of the FEMA Borrowing and Lending in Rupees Regulations requires that NRI/PIO funds to a resident relative be received by inward remittance or credited to an NRO, NRE or FCNR account; direct debit/credit card payments are not provided for. The regulation limits loan tenor and interest, directs repayment routing (adviser notes use of NRO account), and imposes repatriation restrictions with repatriation possible only via the FEMA remittance-of-assets route subject to applicable ceilings.