The company needs money; the NRI promoter or foreign parent has it. Simple – until three rulebooks collide: FEMA (which route may the money take?), the Companies Act deposit rules (is this loan even legal for the company to accept?), and tax (what happens to the interest?). The February 2026 ECB overhaul redrew this map: NRIs became recognised ECB lenders, while the old non-repatriation loan route for companies was folded away. Here is the current decision matrix.
The routes, compared
| Route | Repatriable? | Key conditions | Best for |
|---|---|---|---|
| ECB loan (INR or FCY) | Yes | Any NR lender incl. NRI/OCI; LRN before drawdown; 3-year MAMP; arm’s-length pricing for related parties; event-based ECB-2 | Genuine debt funding from parent, group or NRI shareholder |
| Director loan via NRO (Companies Act route) | No – NRO; exits via USD 1M scheme | NRI must be a director; written declaration that funds are own, not borrowed; DPT-3 disclosure. From Indian/NRO funds (bank practice check advised post-Feb-2026) | Closely-held companies funded by the promoter-director from Indian funds |
| Member deposits (private company) | No | Up to 100% of paid-up capital + free reserves + securities premium; DPT-3; deposit-rule conditions | Small member funding rounds from Indian funds |
| Non-repat loan from NRI relative | No | Individuals only post-Feb-2026 (proprietor/partner level) – NOT companies; repayment only to NRO | Funding a proprietorship/partnership, family support |
| CCD (compulsorily convertible) | Yes (as equity) | FDI instrument – FC-GPR, pricing rules; no LRN/MAMP | Bridge-to-equity without ECB mechanics |
| Equity (shares/CCPS) | Yes | NDI Rules, pricing, sectoral caps – see instruments guide | Permanent capital; the default for startups |
The Companies Act layer – deposits, and who escapes them
- Money accepted by a company is a “deposit” unless an exemption applies – and unauthorised deposits carry serious consequences;
- Exempt: loans from directors (any company) with the own-funds declaration; loans from relatives of directors (private companies); amounts from members within limits; ECB (expressly exempt as an amount received from a foreign source under FEMA); CCDs (convertible within the rules);
- Not exempt: a plain loan from a mere shareholder who is neither director nor relative – route it through the member-deposit rules, ECB, or restructure;
- Everything lands in the annual DPT-3 return – including exempt receipts.
The tax layer
| Item | Position |
|---|---|
| Interest to NR lender | WHT 20% + surcharge/cess (s.115A/207) or treaty rate (typically 10–15%; UAE bank 5%); TRC + Form 10F needed. The old 5% ECB concession (194LC) applies only to pre-July-2023 borrowings |
| Deductibility | Interest deductible for the company, but s.94B caps deduction of interest to related non-residents at 30% of EBITDA (excess carries forward) |
| Transfer pricing | Related-party interest must be arm’s length – benchmark the rate; the ECB framework itself now demands arm’s-length pricing for related lenders |
| The reverse trap | Company lending TO the 10%+ shareholder = deemed dividend (s.2(22)(e)) to the extent of accumulated profits – the classic NRI promoter withdrawal mistake |
Choosing in practice
- Foreign parent funding the subsidiary: ECB for working capital debt (deductible interest, repatriable), equity for permanence – the mix is now a genuinely commercial choice;
- NRI promoter with money abroad: ECB loan (repatriable, 3-year commitment) vs non-repat equity (instant, filing-free, but exit via NRO) – decide on repatriation priority;
- NRI promoter-director with money in India (NRO): the director-loan route remains the pragmatic answer, with the declaration and DPT-3 done properly;
- Anything convertible: if the “loan” was always meant to become equity, start with a CCD and skip the ECB machinery.
Funding round or promoter loan on the table?
We pick the route across FEMA, Companies Act and tax – and paper it: LRN, declarations, DPT-3, benchmarking, the lot.
Talk to My Cloud AccountantFrequently asked questions
Can an NRI give a loan to an Indian private limited company?
Yes – since February 2026 the standard route is an ECB (NRIs are recognised lenders): LRN before drawdown, 3-year minimum maturity, arm’s-length rate. If the NRI is a director lending own funds from Indian/NRO money, the Companies Act director-loan route is the alternative – non-repatriable.
Is a shareholder loan a deposit under the Companies Act?
A loan from a mere shareholder (not a director or director’s relative) is a deposit unless it fits the member-deposit limits. Director loans with the own-funds declaration and ECB borrowings are exempt – but everything is disclosed in DPT-3.
What is the tax on interest paid to an NRI shareholder?
Withholding at 20% plus surcharge and cess, or the treaty rate (typically 10–15%) with TRC and Form 10F. The company’s deduction is capped at 30% of EBITDA for related-party interest under section 94B.
Can the company lend money back to its NRI shareholder?
Dangerous – a loan by a closely-held company to a 10%+ shareholder is deemed dividend to the extent of accumulated profits, taxed at dividend rates with TDS. Use declared dividends or other proper routes instead.
Based on the FEM (Borrowing and Lending) Regulations 2018 as amended February 2026, the Companies (Acceptance of Deposits) Rules 2014 and the Income-tax Act provisions on non-resident interest. Last reviewed: July 2026.