Tax implications for sending and receiving money from India

He plans to give back it to you. So, receiver need to mention this amount as borrowed in accounts and income tax return. And he need to declare this to bank, if bank needs FEMA declaration, before fund credit.

When he give back to you, he need to mention the source of fund to repay that. That would be taxable.

I don't know US part.

There are no tax implications in the US provided that you execute a proper loan agreement with your friend (and both you and he keep a copy of this document with your tax papers). The loan document should spell out the repayment terms (when is the loan due?) and what reasonable (as per what IRS deems reasonable) interest rate will be charged on the loan. The interest that you "receive" from this friend must be declared as income on your US tax return. The word "received_ is in quotes because it is common among friends to actually charge no interest at all (and perhaps even set no fixed date for repayment (or repayment in installments)) and in such a case, the lender must nonetheless record the interest (per loan agreement) as taxable income to himself even though no money actually changes hands. The lender has, in effect, made a gift of the interest amount to the borrower, and with a loan of US $40K, the gift is small enough that the lender is not liable for gift tax.

For the borrower, having the paperwork spelling out that this is a loan is helpful in avoiding taxation in India, and makes life easier for him when it is time to return the money. There is no tax on the loan proceeds -- they are not income to the borrower -- and when it is time to repay, there is legitimate cause for requesting foreign exchange the tune of US $40K. Of course, for all this to work, the money must be sent openly through normal banking channels (including such services as TransferWise or Xoom or Remit2India etc) and not via the Havala market.