Yes, a loan between a resident in India and an NRI relative is allowed under FEMA, but the rules depend on who is lending. A resident individual can now borrow in rupees from an NRI, or from a relative who holds an OCI card. The permission sits in Regulation 6B(vi) of the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, as amended by the Borrowing and Lending (First Amendment) Regulations, 2026. A resident who lends to an NRI relative uses a different route: an interest-free rupee loan of at least one year, counted against the Liberalised Remittance Scheme (LRS) limit.
A loan is a capital account transaction, which is why FEMA regulates it at all (the difference is explained in current account vs capital account transactions). Much of what is still online describes conditions that RBI deleted in February 2026, so check the date on anything you rely on.
When an NRI or OCI relative lends to a resident in India
The amendment was notified as Notification No. FEMA 3(R)(5)/2026-RB dated 9 February 2026. It allows a person resident in India who is an individual to borrow in INR from an NRI or a relative who is an OCI cardholder, for utilisation in India. Two conditions attach to the loan.
- How the money comes in. The loan must be received either by inward remittance from outside India or by debit to the lender's NRE, NRO, FCNR(B) or SNRR account. NRE is the repatriable rupee account, NRO holds income earned in India, FCNR(B) is a foreign currency deposit, and SNRR is a special non-resident rupee account opened for specified business purposes. Cash handed over during a visit fits neither mode.
- How it goes back. The borrowing is on a non-repatriation basis. Interest and principal can be paid only into the lender's NRO account, even if the money originally came out of an NRE account.
The regulation does not cap the amount, the interest rate or the tenure. Earlier versions of RBI's instructions did carry limits on tenure and interest (see this summary of the 2026 amendment). That paragraph was deleted by A.P. (DIR Series) Circular No. 22 dated 16 February 2026, as the footnote in the RBI Master Direction on rupee borrowing and lending with NRIs records. The parties now agree the terms themselves, which makes a written loan agreement more important, not less.
Who can be the lender
For this purpose an NRI has the meaning in the FEMA Deposit Regulations, 2016. RBI's FAQ on accounts in India by non-residents puts it simply: an NRI is a person resident outside India who is a citizen of India. An OCI cardholder takes its meaning from the Citizenship Act, 1955.
Read plainly, the word relative in the clause attaches to the OCI cardholder. An OCI-holding father can lend to his resident daughter; an OCI-holding family friend cannot use this clause. The regulations adopt the Companies Act, 2013 meaning of relative, which RBI's master direction reproduces:
- Members of a Hindu undivided family, and husband and wife.
- Father and mother, including step-parents.
- Son (including step-son), son's wife, daughter and daughter's husband.
- Brother and sister, including step-siblings.
Grandparents, uncles, cousins, nephews and parents-in-law are outside this list. Where the lender is an NRI who is not a relative, the plain wording still seems to permit the loan. The clause is new and RBI has issued little guidance on it, so talk to the bank receiving the remittance before the money moves.
What the borrowed money cannot fund
Regulation 3A applies to all funds borrowed under these regulations. It bars their use for chit funds, a Nidhi company, real estate business or construction of farm houses. Agricultural and plantation activities are also barred, subject to listed carve-outs such as floriculture, horticulture and pisciculture. So are trading in transferable development rights and transactions in listed or unlisted securities, apart from specified corporate actions. On-lending for any of these purposes is also barred, and the list covers some repayments of existing rupee loans, so read the regulation before using the money to close another loan.
So a family loan used for working capital in a proprietorship, a hospital bill or college fees in India is outside the restricted list. The same money used to trade shares is not.
Worked example: a brother in Dubai funds a bakery in Pune
Say Meera runs a bakery as a sole proprietor in Pune. On 1 July 2026 her brother, an NRI working in Dubai, lends her ₹15,00,000 for three years at 6% simple interest, transferred from his NRE account.
- The debit to his NRE account satisfies the receipt condition.
- Interest for 2026-27 covers nine months, from 1 July 2026 to 31 March 2027: ₹15,00,000 × 6% × 9/12 = ₹67,500.
- That ₹67,500, and later the principal, must go into his NRO account. Paying him in Dubai or into his NRE account breaks the non-repatriation condition.
The cost to the brother is that money which left a repatriable account comes back as NRO money. RBI's FAQ says NRO balances can be remitted up to USD 1 million per financial year, and that funds can move from NRO to NRE within that facility. The differences between the two accounts are covered in NRE vs NRO accounts.
When a resident lends to an NRI relative
The reverse direction sits in the same master direction and in the RBI Master Direction on the Liberalised Remittance Scheme. A resident individual may give a rupee loan to an NRI relative only if all of these hold:
- The loan is free of interest.
- Its minimum maturity is one year.
- It stays within the overall LRS limit for the financial year, currently USD 2,50,000.
- It is paid by crossed cheque or electronic transfer and credited to the borrower's NRO account.
- It is not remitted outside India, and its use follows the end-use restrictions.
- Repayment comes by inward remittance or by debit to the borrower's NRO, NRE or FCNR(B) account.
Relative carries the same Companies Act meaning. A loan to an NRI friend, or to an NRI nephew, has no route under this paragraph. Interest is ruled out entirely, so a parent who wants a return on money lent to an NRI child cannot charge it here.
The LRS limit is shared. Rupee gifts to NRI relatives, education and travel remittances and overseas investments by the same person all draw on the same USD 2,50,000, as explained in how the LRS limit works.
Worked example: a father in Jaipur lends to his son in Singapore
Say Rakesh, resident in Jaipur, has already remitted USD 60,000 under LRS in 2026-27 for his daughter's tuition abroad. His son, an NRI in Singapore, needs rupees in India for expenses around his wedding.
- Remaining LRS headroom for the year: USD 2,50,000 − USD 60,000 = USD 1,90,000.
- At an assumed rate of ₹85 per USD, that is about ₹1,61,50,000. The actual rupee figure depends on the rate on the date of transfer.
- The loan must be interest-free, for at least one year, and credited to the son's NRO account.
- If Rakesh also gifts ₹10 lakh to the son in the same year, the gift reduces what is left for the loan.
Slips that turn a family loan into a contravention
- Repaying a resident's borrowing from an NRI straight to a foreign bank or to an NRE account, instead of the NRO account.
- Adding interest to a loan a resident gives an NRI relative.
- Treating an uncle, cousin or in-law as a relative when the Companies Act list does not include them.
- Using borrowed funds for share trading or a property-dealing business.
- Relying on pre-2026 write-ups that quote a three-year cap or an interest ceiling as current law.
A breach is a contravention of FEMA. Where it has already happened, RBI's FEMA compounding route is the usual way to regularise it.
Paperwork worth keeping for each loan
- A signed agreement stating the amount in rupees, the interest rate (or that it is interest-free), the tenure and the account for repayment.
- The bank advice for the inward remittance, or the statement showing the NRE, NRO, FCNR(B) or SNRR debit.
- Proof of the lender's status (passport and visa, or OCI card) and proof of relationship.
- For a resident lending abroad, a working of LRS usage for the year.
- Bank statements showing every interest and principal payment landing in the correct account.
Tax runs on a separate track
FEMA only answers whether the money may move and how. Tax on interest paid to a non-resident lender, and the effect of waiving a loan later, are income-tax questions. From 1 April 2026 they fall under the Income-tax Act, 2025 for tax year 2026-27 onwards, while the Income-tax Act, 1961 continues to govern earlier years.
Status is not decided the same way under both laws either. Someone can be non-resident for income tax but resident under FEMA in the same year, which changes which of the two loan routes applies (see FEMA vs income-tax residential status). Confirm the lender's FEMA status on the date of the transfer before the first rupee moves.
