Residents can now facilitate remittance or send money under the Liberalised Remittance Scheme to IFSCs in India for any permitted reasons. As a result, residents can use the money in IFSCs for financial services and products permitted by IFSC regulations. Additionally, residents can use an FCA in IFSCs for transactions in other foreign countries, not just within IFSCs.
Now, resident investors can look beyond jurisdictions like Singapore and Dubai and simply transact via their FCAs, according to Rohini Nair, partner at ANB Legal. This circular would eliminate the hassles and transactional costs, such as currency exchange costs, associated with travelling abroad, she said.
Kinjal Champaneria, partner at Solomon and Co., concurs. This notification eliminates the need for separate foreign currency accounts inside and outside IFSCs, he said. A single FCA in IFSC can now handle most foreign currency transactions for resident investors, saving both time and money, he added.
Earlier, in February 2021, the RBI had put restrictions on the use of LRS by Indian residents in the GIFT IFSC. They could only invest in securities in IFSCs, so they had to open a non-interest FCA. Additionally, any funds lying idle for more than 15 days were returned to their Indian accounts. These FCAs allowed no domestic transactions.
However, the central bank would relax these rules by 2023. The central bank lifted the 15-day idle fund rule and allowed Indians in GIFT IFSC to pay education fees to foreign institutions there. However, using LRS in IFSCs still differed from other foreign countries.
To explain the impact of the latest notification better, Ketaki Mehta, partner at Cyril Amarchand Mangaldas gives the example of domestic banks.
Many domestic banks consolidated their international operations into IFSC Banking Units at GIFT IFSC, which provided proximity to their headquarters and international operations, along with various financial benefits. Banks without prior international presence also entered global banking by opening their first offshore branches at GIFT IFSC. Previously, these banks couldn’t offer full LRS solutions to their Indian customers due to restrictions in GIFT IFSC, she said.
The new notification allows domestic banks to better serve their Indian ustomers and offer a wider range of financial products, Mehta said.
