Reserve Bank Of India
RBI recently unlocked the door for Indian residents to open foreign currency accounts (FCY) in GIFT City and remit money for multiple purposes under the Liberalised Remittance Scheme (LRS).
As per the central bank’s circular, released earlier this week, residents are allowed to “facilitate remittances for all permissible purposes” via authorised person. This means people now have a wider set of options available at hand for managing international transactions, including remittances.
While industry players have welcomed the move as it will make the GIFT city more attractive for businesses and provide greater flexibility for global investing and spending to Indian residents, here is what this scheme actually means-
What is LRS?
LRS came into view in 2004 as a foreign exchange policy by RBI for simplifying the process of remitting funds outside India. It basically established a defined limit within which residents can freely remit funds for various permissible transactions.
Individuals can remit up to $250,000 annually under the current regulations.
Will the changes in the LRS scheme make it easier to transfer money abroad?
One can agree with this, as earlier there were limited options available for international transactions under LRS. However, the Central Bank’s latest move allows Indian residents to open foreign currency accounts for multiple purposes like buying property overseas, gifting, purchasing insurance, making fixed deposits and funding overseas travel.
“Prior to the latest notification, such FCY accounts were allowed only for investment in securities (except those issued by entities outside IFSC). However, it should be noted that the funds available in the FCY accounts must necessarily be used within 6 months,” said Niteen Dongare, CEO & Head – GIFT City, IFSC, Anand Rathi International Ventures.
What other benefits will the new scheme bring to the table?
Industry experts believe that such a move can possibly make India an attractive option as a financial hub by promoting International Financial Integration.
This decision not only facilitates smoother and easier international transactions but also strengthens GIFT City’s position as a global financial centre, Dongare added.
“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,” said Viram Shah, Co-founder and CEO at Vested Finance.
