India’s credit boom is no longer just about access; it is about exposure. With instant loans, credit cards, and BNPL (buy now, pay later) options becoming mainstream, a growing number of borrowers are committing a significant portion of their monthly income to EMIs. What looks manageable at the time of borrowing often turns into financial strain within months. This is where the 40 per cent rule becomes crucial.
What is 40% rule?
The rule states that your total monthly EMI outflow should not exceed 40 per cent of your net income. The intent is simple but critical. It ensures that even after servicing debt, you retain enough income for essentials, savings, and financial stability. For instance, if your monthly income is Rs 1 lakh, your total EMI should ideally stay within Rs 40,000.
According to Kundan Shahi, Founder, Zavo, the risk begins when this limit is breached, often without realising it.
“Consider a salaried individual earning Rs 80,000 per month. As per the 40 per cent rule, the safe EMI threshold is Rs 32,000. A home loan EMI of Rs 28,000 may appear comfortable, but the addition of even a Rs 6,000 obligation pushes the total to Rs 34,000. At this point, nearly half the income is locked into fixed repayments, leaving little room to absorb rising costs or unexpected expenses,” Shahi said.
Problem is not just about borrowing
Shahi points out that the problem today is not just borrowing, but how borrowing is structured.
“People are no longer taking on one large loan and planning around it. They are taking multiple smaller EMIs over time. The 40 per cent rule was designed as a ceiling, but many borrowers are crossing it unintentionally due to this layering of credit. This challenge is more pronounced in 2026. Urban living costs continue to rise, and even stable interest rates remain sensitive to inflation and global conditions. For borrowers operating close to their limit, even a small increase in expenses can disrupt cash flow and push them towards additional borrowing,” he added.
The 40 per cent rule is not a benchmark to stretch toward but a boundary to stay within. In fact, financially disciplined borrowers are now keeping their EMI exposure closer to 30–35 per cent to maintain flexibility and resilience. Because in today’s credit-driven economy, financial stability is not defined by how much you can borrow but by how comfortably you can repay.
