ADI

Guidelines for Indian Residents Using Foreign Currency Accounts in GIFT City

OVERVIEW:


  • The International Financial Services Centres Authority (IFSCA) issued a circular directing to all IFSC Banking Units (IBUs) concerning the operations of Foreign Currency Accounts (FCA) for Indian resident individuals under the Liberalised Remittance Scheme (LRS).
  • The introduction of the Liberalized Remittance Scheme (LRS) under A.P. (DIR Series) Circular No. 15 by the Reserve Bank of India (RBI) on July 10, 2024, allows Indian resident individuals (RIs) to open FCAs within IFSCs.
  • This circular of IFSCA provides clear guidelines for IBUs regarding the compliance and management of these accounts.
  • The move aims to streamline the management of these accounts within GIFT IFSC.

APPLICABILITY OF THE CIRCULAR:


  • This circular applies specifically to IBUs opening Foreign Currency Accounts (FCA) of resident individuals (‘RI’) as permitted under the Liberalised Remittance Scheme issued by RBI vide Circular dated July 10, 2024.
  • For the purpose of this Circular FCAs refer to foreign currency accounts of resident individuals permitted under the LRS in collaboration with IBUs.

GENERAL DIRECTIONS FOR IBU:


  • Opening FCA for RIs: IBUs can allow residents to open FCAs for two specific purposes:
             1. Receiving remittances under LRS from India (onshore).
             2. Receiving remittances from other countries (offshore), subject to certain conditions.

  • Routing through Authorized Persons (APs): All remittances from India must be routed through an Authorized Person, ensuring compliance with RBI regulations.
  • Required Documentation: Before opening the FCA and with every remittance from India into the FCA, the IBU must collect a copy of the return that the resident individual has submitted to the AP. This return is a compliance document filed as per RBI rules.
  • Utilization of Funds: The funds received should only be used for purposes declared in the submitted return.
  • Foreign Remittances Declaration: IBUs should obtain a declaration confirming that any remittance from foreign locations represents funds remitted earlier under LRS or income from investments made from such funds.
  • Repatriation of Unused Funds: If the foreign exchange received is not reinvested within 180 days, it must be repatriated through an AP back to the RI’s account in an Authorised Dealer (AD) bank in India.
  • Domestic Transactions Restriction: FCAs cannot be used for domestic transactions, and compliance with the Anti-Money Laundering (AML), Counter-Terrorist Financing (CTF), and Know Your Customer (KYC) guidelines is mandatory.

UTILIZATION OF FCA FUNDS IN IFSC:


  • Funds remitted to FCAs may be used to avail of financial products or services within IFSC.
  • These may include fixed deposits, subject to a tenure of less than 180 days.
  • If the maturity proceeds are not reinvested, the provisions of the 180-day rule must be followed.

UTILIZATION OF FCA FUNDS IN FOREIGN JURISDICTIONS:


  • IBUs are permitted to allow funds from FCAs to be used for current or capital account transactions in foreign jurisdictions, excluding IFSC.
  • However, funds cannot be remitted to FATF-identified non-cooperative countries or high-risk jurisdictions or to individuals/entities posing terrorism risks.

REPORTING & COMPLIANCE:


  • When opening an FCA under these directions, IBUs must notify the IFSCA by submitting a letter signed by the Branch Head, describing the arrangements made to comply with these guidelines.
  • IBUs are expected to ensure strict compliance with the directions issued in this circular.
  • This includes aligning operations with IFSCA (Banking) Regulations, 2020, and the provisions of the IFSCA Act, 2019.

CONCLUSION:


  • The IFSCA’s circular on Foreign Currency Accounts under LRS boosts GIFT City’s appeal as a premier financial center by facilitating international transactions for Indian residents.
  • The guidelines ensure transparency and compliance while offering flexibility in accessing global markets and services.
  • This makes GIFT City a strategic hub for residents seeking global financial diversification.
 


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