Lending rupees to family in India: the 2026 rewrite of Regulation 6(B)(vi) on resident individuals borrowing from NRIs and OCI relatives

On 09 February 2026, the Reserve Bank of India issued Notification No. FEMA 3(R)(5)/2026-RB, the Foreign Exchange Management (Borrowing and Lending) (First Amendment) Regulations, 2026. Paragraph 4 of that notification substitutes regulation 6(B)(vi) of the principal regulations, FEMA 3(R)/2018-RB dated 17 December 2018. The rewritten clause governs a very ordinary family transaction: a person resident in India, being an individual, borrowing rupees from a Non-Resident Indian (NRI) or from a relative who holds an Overseas Citizen of India (OCI) card.

This explainer sets out what the substituted text says, how the two conditions attached to it work in practice, and how the interest flows are treated for tax in India and abroad. It is built only from the notification text published on rbi.org.in, Oquilia's statute catalogue and treaty data, and our published NRO account reference material. Where the regulation is silent, for example on interest rates, tenure or end-use beyond "utilisation in India", this article is silent too.

FEMA / DTAA Position

The statutory base

Every rupee loan between a resident and a non-resident is a capital account transaction under the Foreign Exchange Management Act, 1999 (see our FEMA glossary entry). Oquilia's statute brief on Section 6 of FEMA summarises the rule plainly: such transactions need RBI permission unless they are specifically permitted. Regulation 6(B)(vi) is one of those specific permissions, which is why the precise wording of the 2026 substitution matters. The full Act is available on indiacode.nic.in.

What the substituted regulation 6(B)(vi) says

The text inserted by paragraph 4 of the 09 February 2026 notification reads: "A person resident in India being an individual may borrow in INR from an NRI or a relative who is an OCI cardholder for utilization in India." The permission is subject to two conditions, set out in the table below.

Three definitions in amended regulation 2 decide who qualifies. "Relative" has the meaning given in the Companies Act, 2013. "NRI" carries the meaning in the FEMA (Deposit) Regulations, 2016. "OCI Cardholder" carries the meaning in the Citizenship Act, 1955. The practical consequence is an asymmetry in the text: an NRI lender is not required by the wording to be a relative, while an OCI cardholder lender must be a relative within the Companies Act, 2013 definition.

What the same notification did not change for individuals

Notification FEMA 3(R)(5)/2026-RB also substituted Schedule I, the external commercial borrowing (ECB) framework for entities. That schedule does not apply to an individual borrowing from family, so a resident individual taking Rs 10 lakh from a sibling abroad looks only at regulation 6(B)(vi), not at the ECB rules. The notification text we rely on states no interest-rate ceiling, no minimum or maximum tenure and no list of prohibited purposes for this clause; readers should not assume any such limit exists without seeing it in the Gazette text.

Where the DTAA comes in

FEMA governs whether money may move; the Double Taxation Avoidance Agreement (see DTAA) governs who taxes the interest. Under Oquilia's treaty data, the India-USA treaty (effective 12 September 1991) caps Indian tax on interest at 15%, and the India-UK treaty (effective 26 October 1993) also caps it at 15%. Those caps matter in the next section, because the interest a resident pays to an NRI lender is income arising in India.

Tax Treatment in India

Interest is income of the lender, and the borrower withholds

When a resident individual pays interest to an NRI or OCI lender, the lender earns India-source interest. Section 195 of the Income-tax Act, 1961 places the withholding duty on the payer. Oquilia's statute brief on Section 195 records the operating rule: tax is withheld at the DTAA rate or the rate in the Income-tax Act, whichever is lower. Our TDS glossary entry explains the mechanics of deduction and deposit.

The domestic benchmark that NRIs most often meet on interest is 30% plus surcharge and cess, which is the rate recorded in Oquilia's NRI data for interest credited to NRO accounts. Health and education cess is 4% of tax plus surcharge, per our central rate configuration. Surcharge applies only when the lender's Indian income crosses the slabs below, which are also from our rate configuration.

A worked illustration

Assume a resident daughter borrows Rs 10 lakh from her mother, an NRI resident in the United States, and the family agrees interest of Rs 60,000 for the year. The regulation does not set that figure; it is purely illustrative. The table below compares withholding at the domestic benchmark with the 15% treaty cap under the India-USA DTAA, before any surcharge (none applies at this income level in the example).

The difference of Rs 9,720 on a single year's interest shows why the lower-of rule in Section 195 matters. Treaty benefits are not automatic, as our DTAA reference notes, so the lender must furnish whatever treaty-eligibility documents the borrower and the bank ask for before the lower rate can be applied. Our NRI tax calculator and DTAA benefit calculator let you rerun this example with your own figures.

Principal is not income

The return of the Rs 10 lakh principal itself is a repayment of capital, not interest, so it carries no interest withholding. Under condition (b) of the 2026 text, however, even the principal must go back to the lender's NRO account, which has consequences for repatriation explained further below.

The lender's Indian return

Interest received from a family borrower sits alongside any other Indian income the NRI has, such as rent or NRO deposit interest. If total Indian income for FY 2025-26 is assessed, the slab tables in our rate configuration apply: the new regime starts at nil up to Rs 4 lakh, and the old regime at nil up to Rs 2.5 lakh. Where tax withheld exceeds final liability, the NRI lender claims the excess through an Indian return. Withholding shown against the lender's PAN can be checked on Form 26AS.

Tax Treatment Abroad

Residence country taxes worldwide income

An NRI living in the United States or the United Kingdom is usually taxed there on worldwide income, so the Rs 60,000 of interest in our example is typically reportable abroad as well. The treaty exists precisely to stop that interest being taxed in full twice. Oquilia's treaty data notes that Article 24 of the India-USA DTAA provides for a foreign tax credit in the country of residence.

How the foreign tax credit interacts with Indian withholding

The credit available abroad generally tracks the Indian tax properly payable under the treaty, which for interest is capped at 15% under both the USA and UK treaties in our data. If Rs 18,720 was withheld in India at the domestic rate when the treaty allowed only Rs 9,000, the excess Rs 9,720 is normally recovered through an Indian refund claim rather than credited abroad. That is one more reason to apply the treaty rate at source when the documents support it. Our foreign tax credit calculator models the residence-country side.

Dual residents and OCI relatives

OCI cardholders who live abroad and also spend long periods in India should check residence first. The India-UK treaty data records an Article 4 tie-breaker for dual residents, which decides which country is treated as the country of residence for treaty purposes. Only after that question is settled can the 15% interest cap and the credit mechanism be applied correctly.

Repatriation Mechanics

Funding the loan: four permitted routes

Condition (a) of the 09 February 2026 text allows the loan amount to reach the resident borrower in only two ways: an inward remittance from outside India, or a debit to the lender's NRE, NRO, FCNR(B) or SNRR account. Cash handed over on a visit is not one of the listed routes. Keep the remittance advice or the account debit entry; it is the evidence that condition (a) was met.

Repaying the loan: NRO account only

Condition (b) makes the borrowing non-repatriable. Interest payments and principal repayment are made only to the lender's NRO account. This holds even when the loan was funded from a freely repatriable NRE or FCNR(B) balance: the money comes back into the NRO bucket, not into the account it left.

Getting the money out of India afterwards

Once repayments sit in the NRO account, moving them abroad follows the ordinary NRO rules recorded in Oquilia's NRI data: repatriation from NRO is capped at USD 1 million per financial year, after tax. For payments to non-residents above Rs 5 lakh, Form 15CA must be supported by a Chartered Accountant's Form 15CB certificate (see Form 15CA/15CB). The forms are filed on the Income Tax e-filing portal. Our repatriation calculator and NRO-to-NRE transfer tool help estimate the timing and tax drag.

Step-by-step for a family loan

1. Confirm eligibility under amended regulation 2: the lender is an NRI under the FEMA (Deposit) Regulations, 2016, or an OCI cardholder who is a relative under the Companies Act, 2013.
2. Fund the loan by inward remittance or by debit to the lender's NRE / NRO / FCNR(B) / SNRR account, as condition (a) requires.
3. Use the money in India, per the "utilisation in India" wording of regulation 6(B)(vi).
4. Withhold tax on each interest payment under Section 195 at the lower of the DTAA rate (15% for the USA and UK) and the domestic rate.
5. Pay interest and principal only into the lender's NRO account, per condition (b).
6. If the lender later moves NRO balances abroad, stay within USD 1 million per financial year and complete Form 15CA/15CB above Rs 5 lakh.

For background on the wider rupee-lending rules, see our earlier explainer on FEMA 3(R) rupee loans to NRIs and loans against NRE/FCNR deposits and our note on the FEMA Deposit (Sixth Amendment) 2026 NRO-to-NRE transfer rules.

FAQ

Can my NRI brother lend me money in rupees under the 2026 rule?

Yes, if you are an individual resident in India and the money is used in India. Regulation 6(B)(vi), as substituted on 09 February 2026, permits an individual to borrow INR from an NRI, provided the loan arrives by inward remittance or debit to the lender's NRE / NRO / FCNR(B) / SNRR account and is repaid only to the lender's NRO account.

Does an OCI cardholder lender have to be a relative?

Yes. The 2026 text permits borrowing from "a relative who is an OCI cardholder". "Relative" takes its meaning from the Companies Act, 2013, and "OCI Cardholder" from the Citizenship Act, 1955, per amended regulation 2.

Can I repay the loan into my parent's NRE account?

No. Condition (b) of regulation 6(B)(vi) makes the loan non-repatriable: both interest and principal are paid only into the lender's NRO account, even if the loan was originally funded from an NRE or FCNR(B) account.

Does the regulation fix an interest rate or a maximum tenure?

The notification text dated 09 February 2026, as summarised in RBI Notification FEMA 3(R)(5)/2026-RB, states no interest cap, tenure limit or purpose list for this clause beyond utilisation in India. Do not assume a limit that is not in the Gazette text.

Do I have to deduct tax when I pay interest to an NRI relative?

Yes. Section 195 of the Income-tax Act, 1961 requires the payer to withhold tax on interest paid to a non-resident, at the DTAA rate or the domestic rate, whichever is lower. For US and UK resident lenders, the treaty cap on Indian tax on interest is 15%.

Can the NRI lender send the repaid money back abroad?

Yes, through the NRO route. Oquilia's NRI data records an NRO repatriation cap of USD 1 million per financial year after tax, with Form 15CA and a CA's Form 15CB required for payments above Rs 5 lakh.

Does the new ECB schedule apply to family loans?

No. The same notification substituted Schedule I, the external commercial borrowing framework for entities. A resident individual borrowing from an NRI or OCI relative relies on regulation 6(B)(vi), not on Schedule I.

This explainer is general information based on RBI Notification No. FEMA 3(R)(5)/2026-RB dated 09 February 2026 and is not legal or tax advice. Check the Gazette text and your bank's documentation before transferring funds.