Article

Exemptions on Restricted NRI Loans
August 24 , 2012

 NRIs are permitted to take loans in India with some restrictions. The common restriction is that funds from any loan or overdraft should not be used for agricultural, plantation or real estate business, purchase of immovable property, shares, debentures, bonds or relending. There are two exceptions:

Loans for Agriculture

Authorized dealers are permitted to grant loans to resident family members of Indian origin for land based agricultural activity, against the security of land held by him in India; singly or jointly with other resident members provided:

  1. The loan is need-based and granted only in cases where the total land holding of the NRI does not exceed five hectares in his individual name or jointly with others.
  2. The loan should be utilized for carrying out agricultural activities on the existing land and not for acquiring additional land.
  3. The loan can be repaid out of income generated from the agricultural activity or by remittances in foreign exchange sent by the NRI abroad, or by debit to the NRIs account.
  4. Regulations regarding margin, rate of interest, security, etc., stipulated by the RBI are complied with.

Loans for Investments

Authorized dealers are permitted to grant loans/overdrafts on non-repatriation basis to NRIs to purchase shares, or to contribute to the capital of companies engaged in the manufacturing or industrial activities, export-oriented trading, hospitals, hotels of 3-star or higher grades, shipping development of computer software and oil exploration services, subject to:

  1. The concerned Indian investee company intends to issue shares to NRIs on non-repatriation basis.
  2. The period of loan does not exceed the unexposed maturity of the Non-Resident External Fixed Deposit pledged as security.
  3. The loan should be disbursed on behalf of the NRI.
  4. The loan and interest will be paid by a remittance from abroad or through the maturity proceeds of the NRIs NRE deposits. The loan can be repaid out of local Rupee funds from an NRO account. The condition in this case is that the interest charged must be at commercial rates.

 

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