India residents who are planning to invest abroad are required to open bank accounts in foreign jurisdictions before they can invest in global equity markets. Similarly, parents intending to finance their children’s foreign education have to initiate the process of opening a foreign bank account.
The RBI has now implemented new rules that provide flexibility to such permitted foreign exchange transactions by permitting Indian residents to maintain Foreign Currency Account (FCA) under Indian jurisdiction. The Reserve Bank of India has widened the scope of remittances made to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS). The RBI has allowed the opening of forex accounts in the Gujarat International Finance Tec-City (GIFT City) into which money can be remitted for all purposes permitted under the Liberalized Remittance Scheme (LRS)
The RBI now allows any current or capital account transactions and remittances for all permissible reasons under LRS in any other foreign jurisdiction (other than IFSCs) via an FCA held in IFSCs. However, resident individuals can not settle any domestic transactions with other residents via the FCAs maintained in the IFSC.
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This implies that if you want to send money abroad to invest in the US stock market or for your children’s education, you can do so by opening a Foreign Currency Account (FCA) with a bank registered in IFSC.
“The recent decision by the Reserve Bank of India (RBI) to permit resident Indians to open bank accounts in the GIFT city in foreign currencies is expected to have a significant impact on the investment landscape in the country. This move will provide Indian residents with increased flexibility for global investing and spending.
By opening accounts in GIFT city, Indian individuals will be able to keep their funds within the Indian financial system while still participating in global financial activities.
This development is seen as a positive step, especially for High Net Worth Individuals (HNIs) who currently tend to open accounts in financial hubs like Dubai and Singapore,” says Viram Shah, Co-founder & CEO, Vested Finance.
At present, remittances under LRS to IFSCs can be made only for making investments in IFSCs in securities such bonds, equities in companies outside India (outside IFSC) and for payment of fees for education to foreign universities or foreign institutions in IFSCs for pursuing courses. For these permissible purposes, resident individuals can open Foreign Currency Account (FCA) in IFSCs.
Under the Liberalised Remittance Scheme, Authorised Dealers may freely allow remittances by resident individuals including minors up to USD 2,50,000 per Financial Year (April-March) for any permitted current or capital account transaction or a combination of both.
It is to be noted that clubbing is not permitted by other family members for capital account transactions such as opening a bank account/investment, if they are not the joint holders of the overseas bank account/ investment.
The permissible capital account transactions by an individual under LRS include – opening of foreign currency account abroad with a bank, acquisition of immovable property abroad, extending loans including loans in Indian Rupees to Non-resident Indians (NRIs) who are relatives etc while the current account transactions includes private visit, gift, donation, going abroad on employment, emigration, maintenance of relatives abroad, business trip, medical treatment abroad, studies abroad, etc.
Tapan Ray, MD and Group CEO, GIFT City says, “We at GIFT IFSC welcome the Reserve Bank of India’s recent circular expanding the scope of the Liberalised Remittance Scheme (LRS). This decisive 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. We thank the RBI for this progressive step, which will bolster GIFT IFSC’s role as a leading international financial services hub.”
The new RBI rules will help Indian residents make overseas remittances for any of the specified purposes as defined under the LRS scheme. Narinder Wadhwa, Managing Director, at SKI Capital Services says, “It provides greater flexibility for Indian residents to manage their foreign exchange transactions, facilitating seamless remittances for permissible purposes such as education, medical expenses, and investments.”
