 "Sending money abroad now easy: Open foreign currency accounts in GIFT City")
Indian residents can now open foreign currency accounts in International Financial Services Centres (IFSCs) like GIFT City. These accounts allow you to hold foreign currency like US Dollars.Previously, limitations existed on how Indian residents could use the Liberalised Remittance Scheme (LRS) for international transactions. The Reserve Bank of India's (RBI) recent move will allow resident Indians Resident Indians to open foreign currency accounts (FCA) even for sending gifts to friends abroad, buy property abroad, buy insurance, make fixed deposits, education loan payments, and also fund for overseas travel.
What has changed?
Think of an FCA as a bank account in India, but instead of rupees, you hold foreign currency like US Dollars. Now, Indian residents can open these accounts in International Financial Services Centres (IFSCs) like GIFT City.
Example: Priya is saving for her daughter's dream vacation to Europe. With the new rules, Priya can open an FCA in GIFT City and deposit US Dollars directly into the account. This eliminates the need to constantly convert rupees to dollars, potentially saving her on exchange rate fluctuations.
Previously, LRS remittances to IFSCs were limited. Now, you can use your FCA for a broader range of permissible overseas transactions (excluding other IFSCs). Imagine using your FCA to:
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- Gifts: Previously, there were limitations on sending money as gifts abroad. Now, with an FCA, you can easily send gifts to friends or family residing overseas.
- Travel: Managing foreign currency for travel can be cumbersome. With an FCA, you can hold foreign currency like US Dollars or Euros, making it easier to pay for your next adventure abroad.
- Overseas Property: If you've ever dreamt of buying property abroad, an FCA allows you to hold and manage the funds conveniently.
- Foreign Insurance: You might be able to purchase insurance products denominated in foreign currency within the IFSC, potentially hedging against currency fluctuations. This could be useful for assets or liabilities abroad.
- Fixed Deposits: Consider parking your foreign currency savings in a fixed deposit (FD) within the IFSC. This could potentially offer attractive interest rates on your foreign currency holdings.
- Education: If your child is pursuing education abroad, you can use your FCA to directly pay their loan installments in foreign currency, simplifying the process.
- Foreign wealth management: Some IFSCs may offer investment products focused on foreign markets. You could use your FCA to invest in these products, potentially diversifying your portfolio beyond Indian assets.
What were the limitations before?
LRS remittances to IFSCs were restricted to specific investments in securities (excluding Indian companies) and education fees at select foreign universities. Residents couldn't hold FCAs or use them for a wider range of overseas transactions.
These transactions are still subject to the overall LRS limit set by the RBI, which is currently $250,000 per year per person.
What are the benefits?
- Greater Flexibility: This move offers Indian residents more freedom and flexibility for managing their foreign currency holdings and making international transactions.
- Potential Investment Opportunities: The ability to use FCAs for financial services within IFSCs opens doors for exploring new investment avenues.
- Alignment with Global Standards: This brings IFSCs like GIFT City closer to other international financial hubs in terms of the services offered to resident investors.