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The Reserve Bank of India has expanded the scope of remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS).
The apex bank on Wednesday allowed authorised persons to facilitate remittances for availing financial services or products as per the International Financial Services Centres Authority Act, 2019 within IFSCs. It has also permitted current or capital account transactions overseas (except foreign IFSCs) through a foreign currency account (FCA).
For these purposes, resident individuals can open an FCA at GIFT IFSC.
This will allow resident Indians to open a fixed deposit in dollars in a bank account at GIFT IFSC. This will help high net worth individuals to guard against inflation and depreciation against the US dollar. It will help create a banking ecosystem at GIFT IFSC. Residents can now invest outside India through the FCA account, subject to the LRS limit of $250,000 per year.
At present, remittances under LRS to IFSCs can be made only for making investments in IFSCs in securities (except those issued by entities outside IFSC) and payment of fees for education to foreign universities or foreign institutions in IFSCs for pursuing certain courses.
Tapan Ray, MD and Group CEO, GIFT City, said: “This move aligns GIFT IFSC with other global financial centers, allowing resident investors to leverage our platform for a wider range of overseas investments and expenditures.”
By clarifying the use of LRS for investments and enabling transactions like insurance and education loan payments in foreign currency, the RBI has significantly enhanced the attractiveness and utility of GIFT IFSC, he added.
“Notably, insurance and bank fixed deposits in foreign currency, which were previously not permitted, are now enabled for resident Indians. This move is expected to benefit IFSC banks and open up new opportunities for life insurance companies operating in GIFT IFSC, enhancing accessibility and flexibility for Indian resident individuals seeking international investment opportunities,” said Jaiman Patel, Partner, EY India.
It is, however, not clear if the LRS money can be used to invest in derivatives within the IFSC jurisdiction.
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