This is a question that often comes up in cross-border structuring — and the short answer is: No, not under current FEMA rules.
While the Companies Act, 2013 does not restrict zero-interest loans to subsidiaries, the Foreign Exchange Management Act (FEMA), 1999, backed by the Overseas Investment Rules, 2022, lays down stricter guidelines.
📌 As per Rule 8(2)(d) of the FEMA (Overseas Investment) Rules, 2022, any loan given to a foreign subsidiary must carry an interest rate not less than the RBI-prescribed benchmark (e.g., 6-month SOFR, LIBOR, etc.).
🤝 RBI’s Master Direction (No. 15/2015-16) also reinforces this — zero-interest loans are not compliant and could invite regulatory scrutiny.
💡 If you’re looking to support your overseas entity, consider:
– A benchmark-compliant loan
– An equity infusion
– Or convertible instruments like CCDs
Always balance business intent with regulatory compliance. Structuring it right from Day 1 saves both time and penalties.
Let’s keep building globally — but smartly. 🌍