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Key changes in Foreign Exchange laws in India

2. may be treated as an eligible credit to NRO a/c. The gift amount
would be within the overall limit of USD 200,000 per financial year
as permitted under the Liberalised Remittance Scheme (LRS) for a
Till now as per Regulation 8 (d) of the FEMA Notification No.4/2000- resident individual. It would be the responsibility of the resident
RB dated May 3, 2000 viz. Foreign Exchange Management donor to ensure that the gift amount being remitted is under the
(Borrowing and Lending in Rupees) Regulations, 2000 repayment of LRS and all the remittances under the LRS during the financial year
loan by close relative in respect of loan in rupees availed by NRI is including the gift amount have not exceeded the limit prescribed
restricted to housing loans only. The extant provision has now been under the LRS.
reviewed and it has been decided that where an authorised dealer
in India has granted loan to a non-resident Indian in accordance
with Regulation 7 of the Notification No. FEMA 4/2000-RB, such
Contributed by CA. Sudha G. Bhushan and Cs. Rushabh Doshi
loans may also be repaid by resident close relative (relative as
defined in Section 6 of the Companies Act, 1956), of the Non- As per Regulation 7 of the Notification No. FEMA 4/2000 dated May
3, 2000, viz. Foreign Exchange Management (Borrowing and Lending
Resident Indian by crediting the borrower's loan account through
in Rupees) Regulations, 2000, as amended from time to time, an
the bank account of such relative authorised dealer in India may grant loan in rupees to a non-
resident Indian.Under the revised position a resident individual is
permitted to lend to a Non resident Indian (NRI)/ Person of Indian
In terms of A.P. (DIR Series) Circular No. 24 dated December 20, Origin (PIO) close relative [means relative as defined in Section 6 of
the Companies Act, 1956] by way of crossed cheque /electronic
2006 and A.P. (DIR Series) Circular No. 9 dated September 26, 2007
transfer, subject to the following conditions:
the remittances towards gift and donation by a resident individual
was included in the Liberalised Remittance Scheme. As per the (i) the loan is free of interest and the minimum maturity of the loan
revised provision resident individual have been permitted to make is one year;
a rupee gift to a NRI/PIO who is a close relative of the resident (ii) the loan amount should be within the overall limit under the
individual [close relative as defined in Section 6 of the Companies Liberalised Remittance Scheme of USD 200,000 per financial year
available for a resident individual. It would be the responsibility of
Act, 1956] by way of crossed cheque /electronic transfer. The
the lender to ensure that the amount of loan is within the
amount should be credited to the Non-Resident (Ordinary) Rupee Liberalised Remittance Scheme limit of USD 200,000 during the
Account (NRO) a/c of the NRI / PIO and credit of such gift amount financial year;
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3. (iii) the loan shall be utilised for meeting the borrower's personal Indian close relatives shall not be eligible to operate the account
requirements or for his own business purposes in India; during the life time of the resident account holder.
(iv) the loan shall not be utilised, either singly or in association with
other person, for any of the activities in which investment by
persons resident outside India is prohibited, namely;
 the business of chit fund, or
 Nidhi Company, or Non-Resident Indian (NRI), as defined in FEMA Notification No.
 agricultural or plantation activities or in real estate business, 5/2000-RB dated May 3, 2000 viz. Foreign Exchange Management
or construction of farm houses, or (Deposit) Regulations, 2000,, may be permitted to open NRE /
 trading in Transferable Development Rights (TDRs). FCNR(B) account with their resident close relative (relative as
defined in Section 6 of the Companies Act, 1956) on ‘former or
Explanation: For the purpose of item (c) above, real estate business survivor’ basis. The resident close relative shall be eligible to
shall not include development of townships, construction of operate the account as a Power of Attorney holder in accordance
residential / commercial premises, roads or bridges. with extant instructions during the life time of the NRI/ PIO account
(v) The loan amount should be credited to the NRO a/c of the NRI holder. Till now the NRI are not permitted to open the account
Contributed by CA. Sudha G. Bhushan and Cs. Rushabh Doshi
/PIO. Credit of such loan amount may be treated as an eligible credit jointly with the residents.
to NRO a/c;
(vi) the loan amount shall not be remitted outside India; and
(vii) repayment of loan shall be made by way of inward remittances
through normal banking channels or by debit to the Non-resident
Ordinary (NRO) / Non-resident External (NRE) / Foreign Currency Any transfer by way of security of any security including
Non-resident (FCNR) account of the borrower or out of the sale shares/convertible debentures from resident to person resident
proceeds of the shares or securities or immovable property against outside India resident in India requires prior approval of the Reserve
which such loan was granted. Bank. The value of security to be transferred together with any
security transferred by the transferor, as gift, to any person residing
outside India which was not to exceed the rupee equivalent of USD
25,000 during a calendar year has been enhanced to USD 50,000
per financial year.
As per RBI/2011-12/173 September 15, 2011 A.P. (DIR Series)
Circular No. 12 Individuals resident in India are permitted to include
non-resident close relative(s) (relatives as defined in Section 6 of the
Companies Act, 1956) as a joint holder(s) in their resident bank
accounts on ‘former or survivor’ basis. However, such non- resident Resident individuals shall now be permitted to include resident
close relative(s) as defined in the Companies Act, 1956 as a joint
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4. holder(s) in their EEFC/RFC bank accounts on ‘former or survivor’
basis. However, such resident Indian close relative, now being made
eligible to become joint account holder, shall not be eligible to For any further clarification you may get in touch with your team at
operate the account during the life time of the resident account
holder. CA. Sudha G. Bhushan |||CS. Rushabh Doshi |||CS. Hemant Shah
Contact us at
Hitherto, in terms of Schedule 3, 4 and 5 of the FEMA Notification 09769033172 ||| 09769134554
No. 20/2000-RB dated May 3, 2000, sale proceeds of Foreign
Investments in India were treated as eligible credit to NRE/FCNR (B)
accounts, where the purchase consideration was paid by the Non-
resident Indians / Persons of Indian Origin out of inward remittance
or funds held in their NRE/FCNR (B) accounts and subject to
Contributed by CA. Sudha G. Bhushan and Cs. Rushabh Doshi
applicable taxes, if any. It is now clarified that the same facility
would be available to NRIs/ PIOs under Regulation 11 of the said
Notification.
It has now been decided that the medical expenses in respect of NRI
close relative (relative as defined in Section 6 of the Companies Act,
1956) paid by a resident individual, being in the nature of a resident
to resident transaction may be covered under the term “services
related thereto” under Regulation 2(i) of Notification No. FEMA 16
/2000- RB dated May 3, 2000. [Under the Regulation 2(i) the
resident may make payment in rupees towards meeting expenses
on account of boarding, lodging and services related thereto or
travel to and from and within India of a person resident outside
India who is on a visit to India].
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