Foreign Currency Loans

1. Can I take loan from my NRI uncle?
Can I borrow money in foreign currency from my uncle who lives abroad? What are the formalities and what will be the tax implications?
Aaliya Sikand, via email

Borrowing money from rich uncles is always welcome, be it from desi uncle or videshi uncle. The FEMA regulations allows hassle-free borrowings upto US$2,50,000 or its equivalent in foreign exchange from close relatives outside India. One has to follow conditions mentioned below:

i. The loan has to be interest free.
ii. The minimum maturity period of the loan should be seven years.
iii. Amount of loan should be received by way of inward remittance in free foreign exchange through normal banking channels or by debit to the NR(E)/FCNR account of the non-resident lender;
iv. The loan must be utilised for the borrower's personal purposes or normal business activity.

Utilisation of such loans is prohibited:
i. For agricultural or plantation activities.
ii. For purchase of immovable property.
iii. For Buying of shares/debentures/bonds issued by Ind-ian companies.
iv. For re-lending.

All you need to do is apply for the RBI approval. (Form ECB can be downloaded from www.rbi.org.in). If your uncle intends to make non refundable loan he may make a gift to you by remitting money through a bank in convertible foreign exchange without attracting any gift tax and by avoiding Form ECB.

2. Can PIOs purchase property in India?
Are there any formalities to be met by foreign nationals of Indian origin for purchasing residential immovable property in India? Can such residential property be given on rent? Can the rental income from such property be remitted outside India?
Sucheta Murthy, via email

Foreign nationals of Indian origin are allowed to purchase residential immovable property in India provided purchase is done through inward remittances in foreign exchange through normal banking channels or funds from any NRI account maintained in India. Such residential property can be rented out. Remit-tance of rental income (net of applicable taxes) can be made in three ways:

A. By crediting it to Ordinary Non-Resident Rupee Acc-ount (NRO) of the property owner. In accordance with the provisions governing conduct of NRO accounts, current income may be repatriated outside India.

B. In case the NRI is not maintaining an NRO account in India, authorised dealers can remit rental income of the current year based on a certificate given by a chartered accountant saying that the amount proposed to be remitted is eligible for remittance and that applicable taxes have been paid or provided for.

C. If an NRI doesn't have taxable income in India, he can remit rental income without the CA, on a simple declaration (in duplicate) to the effect that he/she is not a tax payer in India.