Alerts & Updates 29th Jul 2024
On July 10, 2024, the Reserve Bank of India issued a circular (RBI July 10 Circular) regarding “Remittances to International Financial Services Centres (IFSC) under the Liberalised Remittance Scheme (LRS)”. Prior to the RBI July 10 Circular) remittances under LRS to IFSCs by resident individuals to open Foreign Currency Account (FCA) could be made only for:
The RBI July 10 Circular states that, pursuant to a review, it has been decided that resident individuals can open an FCA in an IFSC and make remittances to such FCA under LRS for:
Since any remittance by an Indian resident individual to his/her FCA in GIFT City will be under the LRS, it is subject to the stipulation contained in the Master Direction on LRS dated January 1, 2016 (“LRS Master Direction”) that “the received/realized/unspent/unused foreign exchange, unless reinvested, shall be repatriated and surrendered to an authorized person within a period of 180 days from the date of such receipt/ realisation/ purchase/ acquisition or date of return to India, as the case may be.
“57A. Notwithstanding anything contained in any other law for the time being in force, the powers exercisable by the Bank under this Act,— (a) shall not extend to an International Financial Services Centre set up under sub-section (1) of section 18 of the Special Economic Zones Act, 2005; (b) shall be exercisable by the International Financial Services Centres Authority established under sub-section (1) of section 4 of the International Financial Services Centres Authority Act, 2019, in so far as regulation of financial products, financial services and financial institutions that are permitted in the International Financial Services Centres are concerned.”
As a corollary to Section 57A of the RBI Act, Section 20 of the IFSCA Act states that “Every transaction of financial services in an International Financial Services Centre shall be in such foreign currency as may be specified by regulations in consultation with the Central Government.”
The First Schedule to the International Financial Services Centres Authority (Banking) Regulations, 2020 lists out fifteen foreign currencies, which include prominent currencies such as the US Dollar, the Euro, the Japanese Yen, the British Pound and the Russian Rouble, which are permitted to be used in an IFSC.
Even though GIFT City is deemed to be outside India for the purpose of FEMA, until now, authorized dealers have not permitted Indian resident individuals to set up any FCA in GIFT City and make remittances to such FCA under LRS, though, they could have arguably done so. The RBI July 10 Circular, in our view, merely spells out the obvious and removes any hesitation that authorized dealers may have had in opening an FCA for Indian resident individuals.
As would be evident, the aforementioned Regulation 7 is meant for an era where Indian residents collected foreign currency notes from authorized dealers in India before travelling overseas or received foreign exchange in anticipation of an overseas investment and they were expected to return to the authorized dealer any unused foreign currency within 180 days. However, the requirement to return any unused forex within 180 days has found its way to the LRS Master Directions and any FCA opened in GIFT City will also be subject to this rule.
We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com or write to our authors:
Vinod Joseph, Partner – Email – vinodjoseph@elp-in.com
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