In a significant move, the Reserve Bank of India (RBI) announced on Wednesday evening that resident individuals can now open Foreign Currency Accounts (FCA) in International Financial Services Centres (IFSCs) located at GIFT City in Gujarat. This development falls under the Liberalised Remittance Scheme (LRS), enhancing the financial flexibility for resident Indians.

Key Points of the RBI Notification:

  • Resident individuals are allowed to open FCAs in IFSCs under LRS.

  • Authorized persons (e.g., banks and specific FX dealers) can facilitate remittances for all permissible purposes under LRS to IFSCs.

  • Remittances can be used for availing financial services or products as per the International Financial Services Centres Authority Act, 2019, within IFSCs.

  • FCAs in IFSCs can be used for all current or capital account transactions in any foreign jurisdiction, excluding IFSCs.

Understanding the Key Terminologies

Foreign Currency Account (FCA)

An FCA allows individuals or entities to hold funds in a foreign currency rather than the domestic currency. These accounts can be used for various transactions, including international trade, investment, and remittances. FCAs help in mitigating foreign exchange risk and provide a convenient way to manage foreign currency funds.

International Financial Services Centres (IFSC)

IFSCs are designated areas that provide financial services to both residents and non-residents in foreign currencies. The IFSC at GIFT City in Gujarat aims to cater to the financial needs of individuals and businesses by offering services such as banking, insurance, and capital market transactions. It operates under a distinct regulatory framework to enhance global competitiveness.

Liberalised Remittance Scheme (LRS)

The LRS allows resident individuals to remit up to USD 250,000 per financial year for any permitted current or capital account transaction or a combination of both. Under LRS, individuals can invest in foreign securities, acquire immovable property abroad, and make deposits with foreign banks, among other activities.

Authorised Persons

Authorised persons are entities authorized by the RBI to deal in foreign exchange. This includes banks, money changers, offshore banking units, and other financial institutions. They are responsible for facilitating forex transactions and ensuring compliance with the regulatory framework set by the RBI.

Foreign Exchange Management Act (FEMA), 1999

FEMA is an act enacted to facilitate external trade and payments and to promote the orderly development and maintenance of the foreign exchange market in India. It provides a legal framework for the regulation of foreign exchange transactions and the management of foreign currency in India.

Implications of the New RBI Guidelines

The RBI’s decision to allow resident individuals to open FCAs in IFSCs under LRS is a strategic move to align GIFT IFSC with other global financial centers. This enables resident investors to leverage the platform for a wider range of overseas investments and expenditures. The guidelines also clarify the use of LRS for various transactions such as insurance and education loan payments in foreign currency, thereby enhancing the attractiveness and utility of GIFT IFSC.

This move is expected to:

  • Provide greater flexibility to resident individuals in managing their foreign currency funds.

  • Encourage more investments in IFSCs, contributing to the growth of GIFT City as a global financial hub.

  • Streamline the process for remittances related to education and other permissible purposes under LRS.

Overall, the RBI’s notification marks a significant step towards liberalizing foreign exchange regulations and boosting the international financial capabilities of resident Indians.