The Reserve Bank of India (RBI) has announced a significant expansion of the Liberalized Remittance Scheme (LRS) for International Financial Services Centers (IFSCs) like GIFT City in Gujarat. This move allows resident individuals in India to open Foreign Currency Accounts (FCAs) at IFSCs and utilize them for a broader range of financial activities.
Previously, LRS remittances to IFSCs were limited to specific purposes like investments in securities (excluding those issued by Indian entities) and education fees paid to foreign universities within the IFSC.
Key Changes Introduced by RBI:
- Expanded Permissible Purposes: Resident individuals can now use their IFSC-based FCAs for all permissible purposes under the LRS framework. This encompasses a wider range of overseas investments and expenditures.
- Current and Capital Account Transactions: The RBI now permits current and capital account transactions in any other foreign jurisdiction (outside IFSCs) through an FCA held at an IFSC.
- Streamlined Implementation: Authorised Persons, typically banks and authorized forex dealers, will handle these transactions, ensuring they are routed through the banking system.
Benefits of the Expansion:
- Increased Investment Options: Resident Indians gain access to a wider variety of investment opportunities abroad through IFSCs.
- Enhanced Flexibility: Individuals can now use their FCAs for various purposes beyond education and specific investments.
- Alignment with Global Standards: This move brings IFSCs closer to other international financial centers in terms of flexibility for resident investors.
Tapan Ray, MD and Group CEO of GIFT City, welcomed the RBI’s decision, highlighting its potential to make GIFT IFSC a more attractive platform for resident investors. He believes this expansion aligns GIFT City with global standards and allows Indian residents to leverage the IFSC for a wider range of overseas financial activities.
The RBI’s expansion of the LRS is expected to significantly enhance the utility and attractiveness of IFSCs in India, providing resident individuals with greater flexibility and opportunity for managing their foreign currency holdings.
