Non-Resident Indians (NRIs) looking to borrow or lend funds in India must adhere to the Foreign Exchange Management Act (FEMA) guidelines. These regulations govern financial transactions to ensure compliance with India for NRI and the Reserve Bank of India (RBI) rules.

Borrowing Rules for NRIs Under FEMA

1. Borrowing by NRIs from Indian Residents

NRIs can borrow from Indian residents under the following conditions:

• Borrowing can be done only on a non-repatriation basis.

• The borrowed amount must be used for personal purposes or investment in NRI demat account.

• The loan cannot be used for real estate business, agriculture, or plantation activities.

• Interest rates should not exceed the RBI-prescribed rates.

• The loan tenure must be as per RBI’s guidelines.

2. Borrowing by NRIs from Banks

NRIs can borrow from Indian banks under FEMA for specific purposes such as:

• Purchasing or constructing residential or commercial property in India.

• Investing in shares and securities through NRI demat account.

• Funding business activities permitted under Indian laws.

Loans from banks are subject to:

• RBI approval, depending on the loan amount and purpose.

• Repayment from NRE/NRO/FCNR accounts or inward remittance from abroad.

• Mortgage or collateral security, if required.

Lending Rules for NRIs Under FEMA

1. Lending by NRIs to Indian Residents

NRIs can lend to Indian residents only under these conditions:

• The loan should be provided only on a non-repatriation basis.

• Interest rates should not exceed RBI-prescribed rates.

• The loan tenure and repayment terms must comply with FEMA regulations.

• The amount must be credited to an NRO account and used for legal purposes.

2. Lending by NRIs to Another NRI

NRIs can lend to fellow NRIs under the following guidelines:

• The transaction should be in foreign currency or via NRE/NRO accounts.

• Loans cannot be used for investments in real estate, agriculture, or plantation activities.

• Documentation must comply with FEMA and RBI regulations.

Opening an NRI Demat Account for Investments

For NRIs looking to invest in the Indian stock market, opening an NRI demat account is essential. The key features include:

• Demat account for NRIs enables investment in stocks, mutual funds, and bonds.

• NRI demat account vs normal demat account: The former has additional FEMA compliance requirements.

• Documents required for opening DEMAT account in India for NRI include passport, visa, overseas address proof, PAN card, and FEMA declaration.

• Popular platforms like Zerodha NRE account and Zerodha NRI account provide seamless trading facilities.

• PIS demat account is required for investing in Indian equities on a repatriation basis.

Compliance and Reporting Requirements

NRIs must ensure compliance with FEMA while borrowing and lending in India by:

• Reporting transactions to RBI if required.

• Using designated bank accounts such as NRO, NRE, and FCNR.

• Ensuring proper documentation and approval where necessary.

Conclusion

Understanding the borrowing and lending rules for NRIs under FEMA is crucial to ensure smooth financial transactions. Whether borrowing from banks or lending to residents, NRIs must follow RBI guidelines. Additionally, investing in demat account for NRIs and maintaining FEMA compliance ensures secure and legal financial dealings.

For more details on NRI demat account opening online, visit India for NRI.