As discussed in the article ‘Borrowing and Lending under FEMA, an Overview’, FEMA provisions controls the transactions of borrowing by a person resident in India in foreign exchange.
The borrowing in foreign exchange by a person resident in India is specifically permissible as under:
- Borrowing by an Authorised Dealer (‘AD’):
- An AD is allowed to borrow from its Head Office or branch or correspondent outside India or any other entity up to limit specified and subject to terms and conditions as specified by the Reserve Bank from time to time, in consultation with the Government of India.
- A branch outside India of an AD being a bank incorporated or constituted in India, is allowed to borrow in foreign exchange in the normal course of its banking business from outside India, subject to the directions or guidelines issued by the Reserve Bank from time to time, and the Regulatory Authority of the country where the branch is located.
- An AD is allowed to borrow in foreign exchange from a bank or a financial institution outside India, for the purpose of granting pre-shipment or post-shipment credit in foreign exchange to its exporter constituent, subject to compliance with the guidelines issued by the Reserve Bank in this regard.
- An AD is allowed to raise ECB from outside India in accordance with the provisions contained in the External Commercial Borrowings (‘ECB’) Regulations as mentioned in Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB. For detailed analysis of provisions of Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB, refer ‘External Commercial Borrowings by person resident in India’.
- Borrowing by a person resident in India other than AD (subject to the terms and conditions as specified by the Reserve Bank from time to time in consultation with the Government of India):
- Eligible resident entities are allowed to raise ECB from outside India in accordance with the provisions contained in ECB Regulations as mentioned in Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB. For detailed analysis of provisions of Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB, refer ‘External Commercial Borrowings by person resident in India’.
- Trade Credits are allowed to be raised from outside India by importers for import of capital or non-capital goods as permissible under the extant Foreign Trade Policy of the DGFT in accordance with the provisions contained in Schedule II of FEMA Notification No. FEMA.3(R)/2018-RB. For detailed analysis of provisions of Schedule II of FEMA Notification No. FEMA.3(R)/2018-RB, refer ‘Trade Credit provisions under FEMA’.
- A person resident in India is allowed to borrow, whether by way of loan or overdraft or any other credit facility, from a bank situated outside India, where export of goods or services is proposed to be made on deferred payment terms or in execution of a turnkey project or a civil construction contract, provided the terms and conditions stipulated by the authority which has granted the approval to the arrangement are in accordance with the Foreign Exchange Management (Export of goods and services) Regulations, 2015, notified vide Notification No. FEMA.23(R)/2015-RB dated January 12, 2016. For detailed analysis of provisions of Notification No. FEMA.23(R)/2015-RB dated January 12, 2016, refer ‘Export credit provisions’.
- Financial Institutions, set up under an Act of the Indian Parliament, are allowed to raise foreign exchange borrowings with the prior approval of the Government of India for the purpose of onward lending. However, where such borrowings, which are in the nature of ECB, shall be subject to provisions contained in Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB. For detailed analysis of provisions of Schedule I of FEMA Notification No. FEMA.3(R)/2018-RB, refer ‘External Commercial Borrowings by person resident in India’.
- An individual resident in India is allowed to borrow a sum not exceeding USD 250,000/- or its equivalent, or any other amount as decided by the Reserve Bank from time to time, from his/her relatives outside India.
- An individual resident in India studying abroad is allowed to raise loan outside India not exceeding USD 250,000/- or its equivalent, or any other amount as decided by the Reserve Bank from time to time, for the purposes of payment of education fees abroad and maintenance.
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