RBI expands Liberalised Remittance Scheme norms for investment via GIFT IFSC. Check details

The Reserve Bank of India on Wednesday issued a notification that said it has expanded the scope of remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS).

The central bank highlighted it has 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).

Currently, remittances within the Liberalized Remittance Scheme (LRS) to International Financial Services Centres (IFSCs) are limited to investments in securities within IFSCs and payment of education fees to foreign universities or institutions in IFSCs for specific courses.

The central bank noted: On a review, it has been decided that Authorised Persons may facilitate remittances for all permissible purposes under LRS to IFSCs for:

i. Availing financial services or financial products as per the International Financial Services Centres Authority Act, 2019 within IFSCs; and
ii. All current or capital account transactions, in any other foreign jurisdiction (other than IFSCs) through an FCA held in IFSCs.

"For these permissible purposes, resident individuals can open Foreign Currency Account (FCA) in IFSCs," the RBI said. 

With this, residents will now have the opportunity to open a fixed deposit in US dollars at a bank located in GIFT IFSC. This option will provide high net worth individuals with a means to protect their assets from inflation and depreciation against the US dollar. 

Additionally, it will contribute to the development of a robust banking environment at GIFT IFSC. Furthermore, residents will now be able to invest overseas through an FCA account, as long as it does not exceed the LRS limit of $250,000 per year.

It is, however, not clear if the LRS money can be used to invest in derivatives within the IFSC jurisdiction.

Commenting on the development, 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.”

The RBI's clarification on the use of LRS for investments and facilitating transactions such as insurance and education loan payments in foreign currency has greatly improved the appeal and functionality of GIFT IFSC.