IFSC facilitates LRS remittances besides across the border financial products and financial services

International Financial Services Centre (IFSC) caters to customers outside the jurisdiction of the domestic economy dealing with flows of finance, financial products and services across borders. It is also known as an offshore financial centre since it deals with the flow of finance, financial products and services across borders.

IFSC set up in India can provide enhanced access to global financial markets for Indian corporates. The business and regulatory environment offered by it would be comparable to global financial centres like London, New York and Singapore etc. attracting investors. It has been facilitating the rerouting of financial services and transactions that are currently carried out in offshore financial centres by Indian corporate entities and overseas branches/subsidiaries of financial institutions (such as banks, insurance companies, etc.) to India.

The IFSC also seek to attract overseas investors by bringing financial services that are currently being carried out outside India by overseas financial institutions.  The services offered by the IFSC include fundraising services for corporations, individuals and governments, global tax management, Asset management, wealth management treasury management, mergers and acquisitions between transnational corporations, and global portfolio diversification undertaken by pension/mutual funds and insurance firms.

Remittances under LRS

With a view to deepening the financial markets in International Financial Services Centres (IFSCs) and providing an opportunity for resident individuals to diversify their portfolio, it has been decided by RBI to permit resident individuals to make remittances under LRS to IFSCs set up in India under the Special Economic Zone Act, 2005, as amended from time to time. Accordingly, AD Category-I banks may allow resident individuals to make remittances under LRS to IFSCs in India, subject to the following conditions:

The remittance shall be made only for making investments in IFSCs in securities, other than those issued by entities/companies resident (outside IFSC) in India.

Resident Individuals may also open a non-interest-bearing Foreign Currency Account (FCA) in IFSCs, for making the above permissible investments under LRS. Any funds lying idle in the account for a period up to 15 days from the date of its receipt into the account shall be immediately repatriated to the domestic INR account of the investor in India.

Resident Individuals shall not settle any domestic transactions with other residents through these FCAs held in IFSC.

Further, RBI vide its circular dated June 22, 2023, directed that Authorised Persons may facilitate remittances by resident individuals under the purpose of ‘studies abroad’ as mentioned in Schedule III of Foreign Exchange Management (Current Account Transactions) Rules, 2000 for payment of fees to foreign universities or foreign institutions in IFSCs for pursuing courses mentioned in the gazette notification dated 23 May 2022. As per the gazette notification, the Central Government notifies that courses offered in Financial Management, FinTech, Science, Technology, Engineering and Mathematics by foreign universities or foreign institutions in the International Financial Services Centre, as financial service.

Prior to the establishment of IFSCA established in April 2020, the domestic financial regulators, namely, RBI, SEBI, PFRDA and IRDAI regulated the business in IFSC. As the dynamic nature of business in the IFSCs requires a high degree of inter-regulatory coordination within the financial sector, the IFSCA was established in April 2020 as a unified regulator with a holistic vision in order to promote ease of doing business in the IFSC and provide world-class regulatory environment. IFSCA is an authority to develop and regulate financial services, financial products and financial institutions in the International Financial Services Centre (IFSC) in India. Thus, it will not only regulate the nature of the business which will be transacted in the IFSC but will also be regulating the functioning of the entities involved with transacting business in the IFSC.