Moving abroad with a home loan or money lent to friends: what FEMA says about rupee loans when you become an NRI

Moving abroad rarely happens with a clean balance sheet. Many people who leave India for a job in Dubai, London or New Jersey still owe EMIs on a flat in Pune, or are owed money they lent to a friend or cousin a year or two earlier. The Reserve Bank of India deals with both situations in one place: paragraph 7 of the Master Direction on Borrowing and Lending transactions in Indian Rupee between Persons Resident in India and NRIs/PIOs (FED Master Direction No. 6/2015-16, dated 1 January 2016, updated as on 8 September 2026).

The short answer: a change of residence does not turn a lawful rupee loan into a foreign exchange problem, but under paragraphs 7.1 and 7.2 it changes who decides whether the loan continues and which accounts the money may travel through.

FEMA / DTAA Position

The statutory starting point

Under Section 6 of the Foreign Exchange Management Act, 1999, a capital account transaction between a resident and a non-resident needs RBI permission unless it is specifically permitted. A rupee loan between a person resident in India and a person resident outside India is a capital account transaction. That is why the moment you become a non-resident under FEMA, every rupee loan you are party to must fit inside one of the permissions in the Master Direction. RBI has also been moving parts of this framework into regulations: on 16 February 2026, A.P. (DIR Series) Circular No. 22 deleted paragraph 2 (residents borrowing from NRIs) from the Direction and shifted it into the FEM (Borrowing and Lending) Regulations.

Paragraph 7.1: you are the borrower

If you took a rupee loan or overdraft from an authorised dealer bank while resident, and you then become a person resident outside India, paragraph 7.1 says the bank "may allow continuance of loan/overdraft till its original maturity subject to the satisfaction of the lender". Three points follow from that single sentence:

1. Continuation is permitted, not guaranteed. The bank has the discretion and can ask for fresh documents or security first.
2. The cap is the original maturity. A 20-year home loan taken in 2019 can run to its 2039 maturity, but the Direction does not give a non-resident borrower a right to extend that tenure beyond what was originally agreed.
3. The repayment channel narrows. For as long as you remain a non-resident, repayment "shall be out of inward remittance from outside India or from NRE/FCNR(B)/NRNR/NRO/NRSR account of the borrower".

The practical consequence is that the resident savings account from which your EMI was auto-debited cannot stay as it is. Under RBI rules a resident account must be redesignated as an NRO account once you become a non-resident, and the EMI mandate should then run from that NRO account, an NRE account or direct inward remittance.

Paragraph 7.2: you are the lender

Paragraph 7.2 covers the reverse case. If you lent rupees to another resident while you were both resident in India, and you later become a person resident outside India, "the repayment of the loan by the resident borrower should be made by credit to the NRO account of the lender". Your friend cannot repay into an NRE account or your overseas bank; the money lands in your NRO account and follows NRO repatriation rules.

Fresh borrowing after you have moved

The change-of-status rules apply to loans that already exist. New rupee loans taken as an NRI fall under other paragraphs of the same Direction:

Para 4 also says the quantum of loan, margin money and repayment period must be "at par" with housing finance given to a resident, and the loan must be fully secured by equitable mortgage of the property, with a lien on other Indian assets if needed. Para 6 sets two hard conditions for loans from a resident relative to an NRI: the loan must be free of interest, and its minimum maturity is 1 year, all within the resident's overall Liberalised Remittance Scheme limit for the financial year.

Where the DTAA comes in

A Double Taxation Avoidance Agreement does not override FEMA; it only decides which country may tax income and at what rate. EMIs are not income, so the treaty mostly matters to a lender earning interest from an Indian borrower, where the interest article caps Indian tax. Treaty rates for three common destinations are below; see our DTAA glossary entry for the framework.

None of these treaties makes capital gains on Indian property or shares "exempt" in India. If you sell the flat to clear the loan, India keeps its right to tax the gain.

Tax Treatment in India

For the borrower: the home loan deductions

Becoming a non-resident does not switch off home loan deductions under the Income-tax Act, 1961; it changes how much of your income is taxable in India in the first place. A non-resident is taxed in India only on Indian-source income, such as rent from the mortgaged flat or interest on an NRO deposit. Interest on a housing loan is claimed under Section 24 against income from that house property, and principal repayment qualifies under Section 80C, which is available under the old tax regime only.

The regime choice for FY 2025-26 matters more than most new NRIs expect:

The rebate row catches people out: Section 87A is for resident individuals only, so an NRI with Rs 9 lakh of Indian rental income cannot use the Rs 60,000 rebate a resident would. Surcharge applies at 10% between Rs 50 lakh and Rs 1 crore, 15% between Rs 1 crore and Rs 2 crore, and 25% above Rs 2 crore, with the 37% band above Rs 5 crore available only in the old regime.

If you are letting the flat while you are abroad, the tenant's rent is Indian income. Our NRI rental income tax calculator shows how rent, the Section 24 interest claim and the slab rates interact, and the NRI income tax calculator runs the full regime comparison.

For the lender: interest from a friend

Paragraph 7.2 says nothing about tax, but the Income-tax Act does. If the loan you gave while resident carries interest, that interest is Indian-source income once you are a non-resident. Payments of interest to a non-resident fall under the withholding provision in Section 195, so the resident borrower is expected to deduct TDS before crediting your NRO account. Where you hold a Tax Residency Certificate (TRC) from your new country, the treaty rate in the table above (15% for the US and UK, 12.5% for the UAE) can cap the Indian rate.

An interest-free loan produces no interest income, and principal repaid is a return of your own capital, not income, in India.

Tax Treatment Abroad

India is only half the picture. Once you are tax resident in another country, that country may tax your worldwide income, including rent from the Indian flat and any interest your friend pays you.

The foreign tax credit is what prevents the same rupee being taxed twice. Article 24 of the India-US treaty, for example, provides for a credit in the country of residence for Indian tax paid on income that India is allowed to tax. The UK treaty contains a tie-breaker rule in Article 4 that decides residence for people who are resident in both countries in the same year, which matters for anyone who leaves India part-way through a financial year such as 2026-27.

Our foreign tax credit calculator and DTAA benefit calculator let you model the credit for a given country.

Whether Indian home loan interest is deductible abroad depends entirely on the residence country's domestic law, so check it locally; Oquilia quotes no foreign deduction figures here because none were verified for this 5 November 2026 guide.

Repatriation Mechanics

Paying the EMI from abroad

Paragraph 7.1 lists five accounts that may fund EMIs on a continuing loan (NRE, FCNR(B), NRNR, NRO and NRSR) plus inward remittance. Most borrowers use one of two routes:

1. Salary abroad to NRE, NRE to loan account. Money in an NRE account is freely repatriable, so if you later decide to stop paying and move the balance out instead, you can. See our NRE FD calculator for what idle balances earn.
2. Indian rent to NRO, NRO to loan account. Rent collected in India lands in an NRO account and can service the EMI directly, which avoids converting currency twice.

Paragraph 4, for fresh NRI housing loans, adds rental income from the financed property and a relative's account-to-account transfer; for a top-up after moving, ask which paragraph applies. Our NRI home loan calculator and home loan EMI calculator show the EMI at different tenures.

Receiving repayment as the lender

Repayment from a resident friend goes to your NRO account under paragraph 7.2. Moving that money abroad is a separate step. NRO balances can be repatriated within the overall USD 1 million per financial year facility for remittance of assets, which Oquilia has covered in detail. From 1 April 2026, the tax-clearance forms for such remittances changed: Form 145 and Form 146 replaced Form 15CA and Form 15CB, as explained in our guide to the new forms. The NRO to NRE transfer calculator and the repatriation calculator estimate the net amount after tax.

A worked sequence for a typical move

If a family member at home has been handling your accounts, read our explainer on what a resident power of attorney holder can do with an NRE account before handing over the EMI mandate. For background on the account types, see the FEMA glossary entry and the FCNR deposit entry.

FAQ

Will my bank call in my home loan when I move abroad?

Not automatically. Paragraph 7.1 of RBI's Master Direction (updated 8 September 2026) allows the bank to continue the loan until its original maturity, subject to the bank's satisfaction. The decision sits with the bank, so inform it before you leave.

Can I keep paying my EMI from my old savings account?

Only after it is redesignated. Once you are a non-resident the account must become an NRO account, and paragraph 7.1 allows EMIs from NRE, FCNR(B), NRNR, NRO or NRSR accounts or by inward remittance.

My friend owes me Rs 5 lakh from before I moved. Where should the repayment go?

Under paragraph 7.2, a resident borrower repays a lender who has become non-resident by crediting the lender's NRO account. It cannot go straight to your foreign bank account or to an NRE account.

Can my parents lend me money in India now that I am an NRI?

Yes, under paragraph 6, if the loan is interest-free, has a minimum maturity of 1 year, stays within the parent's Liberalised Remittance Scheme limit for that financial year, and is credited to your NRO account rather than sent abroad.

Is the interest my friend pays me taxable in India?

Yes. Interest received from an Indian resident is Indian-source income. The payer should deduct TDS under Section 195, and a Tax Residency Certificate lets you claim the treaty cap of 15% (US, UK) or 12.5% (UAE).

Can I still claim Section 80C on principal repayment as an NRI?

Yes, but only under the old tax regime. Section 80C is not available in the new regime, which for FY 2025-26 has a Rs 4 lakh basic exemption slab instead.

Does the DTAA make the gain on selling my Indian flat exempt?

No. Under the US, UK and UAE treaties India retains the right to tax capital gains on Indian assets, at 12.5% on long-term gains under the rules in force since 23 July 2024. Your residence country gives credit for that tax.

This article explains RBI and Income-tax Act rules as published on 5 November 2026. It is general information, not legal or tax advice; confirm your position with your bank and a chartered accountant before acting.