One More Push For IFSC IBU- Liberalization In LRS

What is LRS:

Liberalised Remittance Scheme ("LRS") is a foreign exchange policy initiative introduced by the Reserve Bank of India ("RBI") in 2004 vide Master Direction - Liberalised Remittance Scheme dated 04^th February 2004 (as amended from time to time) ("Master Direction-LRS"). LRS is a liberalization measure to facilitate resident individuals to remit funds abroad for permitted current or capital account transactions or combination of both.

Under LRS, resident individuals can freely remit funds up to a certain limit for purposes including but not limited to private visits, acquisition of immovable property abroad, business trip, emigration, opening of foreign currency account abroad with a bank etc.

Present Regime for LRS in IFSC-

Currently, remittances under the LRS to IFSC Banking Units ("IBUs") in International Financial Services Centres ("IFSCs") are restricted to the specific purposes described as following:

1. Nature of Account and Deployment- Remittance of funds to IBUs has been permitted to a non-interest-bearing Foreign Currency Accounts ("FCAs") opened in IFSC, with idle funds not exceeding 15 days. Although, mandatory repatriation to India was required in case of idle funds not utilised within 15 days as aforesaid. Subsequently, the said restriction of deployment within 15 Days has been withdraw and is now governed like any other remittance under LRS for resident Individuals. Therefore presently, any unspent/unused funds, unless reinvested, shall be repatriated and surrendered to an Authorised Person¹ within a period of 180 days from the date of such receipt or date of return to India, as the case may be.
2. Nature of Transactions- (i) Investment in securities in IFSC issued by entities/companies in IFSC (not resident Indian entities); and (ii) Remittance of educational fees to foreign universities or institutions situated in IFSCs or overseas, limited to courses enumerated in the Gazette Notification² were permitted. However, no transactions within India could be undertaken through FCAs.

Proposed Liberalisation

Vide the circular - Remittances to IFSCs under the LRS issued by RBI dated 10^th July 2024 ("IFSC LRS Circular"), RBI has now expanded the scope of remittances for all permissible purposes under LRS to IFSCs for:

1. Availing financial services or financial products as prescribed under the IFSCA Act within IFSCs; and
2. All current or capital account transactions, in any other foreign jurisdiction (other than IFSCs) through an FCA held/maintained in IFSCs

What this means-

This IFSC LRS Circular could have far reaching impact on the activities that are now permissible to Indian residents and is also a huge boost to the entities operating in IFSC as additional sources of revenue including but not limited to: -

1. Placing term deposits with IBUs in IFSC;
2. Taking out Insurance through insurers in IFSC;
3. Investments in securities and financial products issued / offered in IFSC;
4. Investments for acquiring technology/ know-how, intellectual property, etc of companies based out of IFSC
5. In addition to allowing the above for entities within IFSC, it has now been further permitted to make investments and undertake all permissible capital/ current account transactions in any other jurisdiction through the FCA in IFSC.

Conclusion:

This decisive move aligns GIFT IFSC with other global financial centers, allowing resident investors to leverage the 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. This move is expected to benefit IFSC banks enhancing accessibility and flexibility for Indian resident individuals seeking international investment opportunities.

Footnotes

1. Shall be such persons authorised by the RBI to deal in foreign exchange or in foreign securities, as an authorised dealer, money changer or off-shore banking unit or in any other manner as it deems fit (S.10 of FEMA)

2. SO 2374(E) dated May 23, 2022

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