Intercompany Loans to an Indian Subsidiary: FEMA Rules and Interest Rate Limits
A loan from a foreign parent to its Indian subsidiary falls under FEMA's ECB framework by default, with interest rate ceilings and reporting obligations that differ from how intercompany loans might work elsewhere.
An intercompany loan from a foreign parent to its Indian subsidiary is regulated under FEMA as a form of External Commercial Borrowing, it isn't treated as a simple private financial arrangement between related entities the way it might be in other jurisdictions. This means the loan needs to comply with ECB's minimum maturity requirements, permitted end-use restrictions, and interest rate ceiling (the all-in-cost ceiling, which caps how much interest can be charged, relevant since a rate set purely to shift profit rather than reflect genuine borrowing cost can also raise transfer pricing scrutiny).
Registration with RBI (via an authorized dealer bank, using the Loan Registration Number process) is required before drawdown, and ongoing reporting obligations continue for the life of the loan, this isn't a one-time filing but a standing compliance commitment for as long as the loan is outstanding.
Structuring an intercompany loan without factoring in ECB compliance from the start, treating it as a simple internal transfer, is a common and avoidable compliance gap, the loan terms should be designed against ECB's specific rules before funds move, not adjusted after the fact.