MC Explains I How RBI's easing of LRS norms opens new avenues for investors via GIFT City

MC Explains

The Reserve Bank of India (RBI) on July 10 expanded the scope of remittances to International Financial Services Centres (IFSCs) under the Liberalised Remittance Scheme (LRS) and allowed residents to open foreign currency accounts in GIFT City.

The central bank has also allowed authorised persons to facilitate remittances for availing financial services or financial products as per the International Financial Services Centres Authority Act, 2019 within IFSCs; and all current or capital account transactions in any other foreign jurisdiction (other than IFSCs) through a Foreign Currency Account (FCA) held in IFSCs.

Here’s an explainer on how the move adds to the options of Indians looking to remit money overseas.

What changes were made in the LRS scheme?

At present, remittances under LRS to IFSCs can be made only for making investments in IFSCs in securities (except those issued by entities outside IFSC) and payment of fees for education to foreign universities or foreign institutions in IFSCs for pursuing certain courses.

Now, the RBI has allowed remittances under LRS for deposits, purchasing immovable property, investing in equity and debt, giving gifts, making donations, travelling, maintaining close relatives, receiving medical treatment as well as studying abroad.

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What does having a FCA in GIFT City mean?

According to Jyoti Prakash Gadia, Managing Director at Resurgent India, the opening of FCAs at GIFT City will now enable a wider range of avenues of investing by Indian citizens in addition to the previously limited permission for remittances for securities and education expenses.

For what purpose a FCA account can be used?

As per the release, an FCA account can be used to invest in portfolio management schemes, which invest in foreign securities and in depository receipts of foreign stocks which are trading in the IFSC exchange.

MC Explains

What does the move mean?

Amit Pabari, managing director at CR Forex, said the new circular allows authorised entities to facilitate remittances for any permissible current or capital account transactions. This means individuals can use their foreign currency accounts in Gift City to conduct a broader array of financial activities that are allowed under LRS within the current limit of $250,000 per year.

Residents in India can now open and hold accounts in foreign currencies at GIFT City allowing individuals more flexibility in managing their foreign currency needs.

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Will this have any impact on investment?

Experts say that the move is expected to increase investment through this route as individuals will have more flexibility in managing investment and financial activities.

“There's a possibility of seeing an uptick in investments through this route due to the recent easing of norms by the RBI as individuals have more flexibility in managing their investments and financial activities,” Pabari added.

Gadia added that with the new relaxations in the foreign currency remittances we will now certainly see a perceptible uptick in the investments through the GIFT City entities. Customer-friendly foreign currency products such as deposits and other services will now be available through this platform without any hassle and on attractive terms, giving a feel of participation in the international financial system, he said.