P2P lending and an NRI: the FEMA problem behind the marketing

Peer-to-peer lending platforms connect lenders with borrowers, and the borrowers are ordinary residents you do not know. That is exactly the problem for an NRI. Under the exchange-control rules, a non-resident lending rupees to a resident is tightly restricted: it is permitted essentially only to a close relative, on a non-repatriation basis, and under specific conditions. Lending to strangers, which is the whole point of a P2P platform, is not within what an NRI is allowed to do.

The regulator's framework for these platforms also stresses that there should be no international flow of funds through them. So when a platform invites you to register as an NRI lender, that invitation conflicts with the exchange-control position; the platform's onboarding flow does not make the transaction permitted. Treating a platform's willingness to sign you up as proof it is allowed is the mistake, it is not, and lending through it would be a breach of the rules.

For completeness, if interest were earned on such lending, the tax treatment is simple: interest from P2P lending is income from other sources under Section 56, taxed at your slab rate, and only the interest, not the return of your principal, is taxable. In practice no tax is deducted at source on it, because the borrowers are individuals not required to withhold and the platform is only an intermediary, so it would be self-declared on your return.

But the tax is not really the point here. The point is that an NRI should not be doing P2P lending at all, because it is not permitted, and no return justifies an exchange-control breach that can complicate your Indian banking and repatriation later. The honest advice is to steer clear of it despite the platforms' invitations, and to use permitted routes for lending or investing instead. A practising CA can confirm the position for your specific case and point you to compliant alternatives, and help unwind any P2P lending already done.