The Reserve Bank of India (RBI) has allowed Indian residents to open foreign currency accounts (FCA) in Gujarat International Finance Tec-City, or GIFT City which will enable them to hold foreign currency including US dollars.
Putting simply, consider FCA as a bank account in India, where instead of rupees, you hold foreign currency. Residents in India can now open these accounts in International Financial Services Centres (IFSCs) like GIFT City.
GIFT City is the only IFSC to have been approved in India by the government. Business in IFSC is done using foreign currency and for all regulatory purposes, it is treated as an international financial hub.
What has changed?
Till the announcement, there were limitations on how residents in India could use the Liberalised Remittance Scheme (LRS) for international transactions.
So far, FCA in the finance hub could only be used for investing in overseas-listed securities as well as for paying tuition fees for foreign universities at GIFT City.
However, in a circular released late on Wednesday (July 10), the RBI said, “On a review, it has been decided that Authorised Persons may facilitate remittances for all permissible purposes under LRS to IFSCs (International Financial Services Centres) 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 an FCA held in IFSCs.”
Simply put, Indians are now allowed to use GIFT City as a route for more overseas spending and investments.
How much can Indians now remit?
After the new scheme, Indian residents are now allowed to remit up to $250,000 overseas annually.
How will this help?
This relaxation of norms will help banking and financial services in the finance hub, such as payments and insurance.
So if you are planning to study or travel overseas, you can open an FCA in GIFT City and directly deposit dollars into the account. This will help eliminate the need to constantly convert rupees to dollars and also potentially save on exchange rate fluctuations.
By opening FCA, Indian residents can now send gifts to friends abroad, purchase immovable property overseas, buy insurance, make deposits, receive medical treatment, pay education loan for studying abroad, travel abroad, and make donations.
Also, the funds in the foreign currency accounts can also be used to invest in portfolio management schemes that invest in foreign securities and also in depository receipts of foreign trading in IFSC exchange.
However, they are not permitted to invest in stocks of Indian companies listed on IFSC but can invest in foreign listings.
With inputs from agencies
Find us on YouTube
