IFSCA Issues New Directions For Operation Of Foreign Currency In IFSC ACCOUNT OF Resident Individuals Under LRS

• The RBI had issued a Circular¹ ('RBI Circular') permitting Indian Resident Individuals ('RIs') to open Foreign Currency Account ('FCA') with IFSC Banking Units ('IBUs') for receiving remittances under Liberalised Remittance Scheme ('LRS') for:
  • Availing financial products or services within IFSC
  • All current or capital account transactions in any other foreign jurisdiction (other than IFSC) through an FCA held in IFSC
• Prior to the issuance of the said Circular, the opening of FCA by RIs with IBUs was permitted only for making investments in IFSC in securities except those issued by entities / companies resident in India (outside IFSC) and payment of fees for education to foreign universities in IFSC.
• Pursuant to the issuance of the said RBI Circular, the IFSCA had issued a Circular² providing directions to IBUs permitting them to open FCA for RIs for receiving remittance under LRS from onshore India as well as from locations other than onshore India subject to the prescribed conditions.
• The IFSCA has now issued a new Circular³ ('New IFSCA Circular') prescribing directions to IBUs for operations of FCA of RIs opened with IBUs in IFSC and the directions under the earlier IFSCA Circular shall not apply.

APPLICABILITY

The New IFSCA Circular is applicable to IBUs opening FCA of RIs under LRS. Additionally, IBUs can also open FCA by RIs for purposes beyond LRS, in accordance with the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015.

GENERAL DIRECTIONS TO IBUs

• All the remittances into the FCA from onshore India under LRS shall be routed through an Authorised Person ('AP').
• The IBUs shall monitor that the remittances into the FCA are made within a reasonable period of time from the date of opening the account.
• A copy of the return submitted by the RI to the AP or any other document confirming the transfer under LRS must be obtained at the time of any inward remittance from onshore India.
• A declaration w.r.t remittances into FCA from locations other than onshore India must be obtained from the RI, confirming that the remittance represents funds duly remitted earlier under LRS or income earned from such investments made from such funds.
• A declaration should be availed from the RI that any received, realised, unspent, or unused foreign exchange from onshore India or from a location other than onshore India in FCA, shall be repatriated through an AP to the RI's account in a designated Authorised Dealer ('AD') Bank, unless reinvested within 180 days.
• A declaration must be availed from the RI that they will not settle any domestic transactions with other RIs through the FCA
• Compliance with the IFSCA (Anti Money Laundering, Counter-Terrorist Financing, and Know Your Customer) Guidelines, 2022 is mandatory

DIRECTIONS FOR AVAILING FINANCIAL SERVICES OR FINANCIAL PRODUCTS IN IFSC

• IBUs shall permit the use of funds remitted to the FCA for availing financial products or services within IFSCs.
• Fixed Deposits may be offered to RIs, provided their tenure is less than 180 days - If the maturity proceeds are not reinvested in another permissible financial product, then the said proceed shall be repatriated through an AP to the RI's account in a designated AD Bank.
• IBUs shall allow remittance from FCA for all permitted current and capital account transactions in foreign jurisdictions (outside IFSC).
• IBUs shall ensure that:
  • Remittances for capital account transactions from FCA are not made to non-cooperative countries/territories listed on the FATF1 website or notified by the RBI.
  • Remittances from FCA are not made to individuals or entities identified by the RBI as posing a terrorism risk.
• In both cases (viz. remittance of funds in FCA for availing financial products / services in IFSC or in other foreign jurisdictions), IBUs shall avail a declaration from RI to the effect that the amount being spent from its FCA is for the purpose declared while remitting such funds under LRS.
• Additionally, IBUs are advised to take steps to ensure that opening of FCA and remittance of funds to FCA is enabled digitally on the digital banking platforms of the parent bank.

AURTUS COMMENTS

The requirements under the New IFSCA Circular are largely the same as prescribed under the earlier IFSCA Circular dated 10 October 2024. However, it has been clarified that FCA of RIs with IBUs can now also be opened for permitted purposes other than LRS. Additionally, the requirement of availing declaration from RI regarding use of the funds remitted to FCA has been introduced and mere opening of the FCA without making remittance thereto for a substantial period of time may not be permitted. The IFSCA directions shall facilitate RIs to open FCA with IBUs for their LRS transactions instead of requiring to rely upon offshore banks for the same.

Footnotes

1. A.P. (DIR Series) Circular No.15 dated 10 July 2024

2. F.No. IFSCA-FMPP0BR/1/2021-Banking-Part(1)/2 dated 10 October 2024

3. F. No. IFSCA-FMPP0BR/1/2021-Banking –Part(1)/3

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.