Borrowing from relatives abroad

Borrowing from relatives abroad

What are the options that immediately come to your mind when you are in need of money? Banks, financial institutions, friends and relatives. Generally, the idea of borrowing money from near and dear ones settled abroad is never considered seriously. But it is an option that people should not ignore and should keep themselves abreast of the procedural details.

The Reserve Bank of India allows individuals residing in India to borrow funds from these sources, subject to fulfillment of certain specified conditions. Before borrowing funds, the loanee needs to take note of the foreign exchange regulations in this regard.

As per the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations 2000, a person resident in India is restricted from borrowing in foreign exchange from a person resident outside India. A general permission, however, has been granted under the said regulation for individuals.

An individual resident in India is allowed to borrow up to $2,50,000 or its equivalent (in other currencies) only from his/her close relatives residing outside India, provided certain conditions are satisfied. These include: the minimum maturity period of the loan has to be one year; the loan has to be free of interest; and the amount of loan has to be received directly from overseas through normal banking channels or from the Non Resident External (NRE) / Foreign Currency Non Resident (FCNR (B)) account of the non-resident lender.

If any of the above mentioned conditions is not satisfied for instance, if an individual borrows funds from a friend or his/her father’s friend then the borrower has to seek specific permission from the RBI.

It is also imperative that adequate documentation is maintained by the borrower and the lender to prove that the said conditions are met. This will help avoid any tax/regulatory issues at a later date. In this connection, a letter of request from the borrower to his close relative for the loan and a confirmation to this effect from the lender to grant the loan should be maintained for future reference. Further, documentary evidence (an audit trail) of the bank documents in respect of the receipt of loan funds and its subsequent repayment should also be kept in records for future reference.

All this means that if you have a relative who is willing to lend you funds for some time without charging interest, you could consider borrowing the funds under the automatic route i.e. without seeking any permission from the RBI.

It is pertinent to note that funds can be borrowed only from the “close relatives” as defined by the regulation. For the purposes of such borrowing, close relative refers to:

   
Members of a Hindu undivided family Son's wife and Daughter's Husband
Husband and Wife Grand father / Grand mother (both paternal and maternal)
Father and Mother (including step-mother) Grandchildren (Son's son / daughter and Daughter's son / daughter)
Brother and Sister (including stepbrother and step-sister) Brother's wife and Sister's Husband
Son and Daughter (including stepson and step-daughter) And few other close relatives as specified.

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Author: Austin Comments: 4 comments Date: 16 Feb 2008
Categories: Loan Tags: , , , , ,

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