Where the permission comes from
Two sets of rules work together.
- IFSCA. Regulation 11(2) of the IFSCA (Banking) Regulations, 2020 allows resident individuals to open, hold and maintain accounts in the specified foreign currencies with a Banking Unit, for transactions connected with any current or capital account transaction permitted under the RBI's Liberalised Remittance Scheme (LRS). The Accepting Deposits module of the Banking Handbook's Conduct of Business directions repeats this, subject to any restrictions under the LRS.
- RBI. Paragraph 11 of the RBI's Master Direction on the LRS allows authorised persons to facilitate remittances to IFSCs in India for all permissible purposes under the LRS. It lets resident individuals open foreign currency accounts in IFSCs for those purposes. The current wording comes from A.P. (DIR Series) Circular No. 15 of 10 July 2024.
What the money can be used for
Under the Master Direction, money remitted to an IFSC account can be used:
- to buy financial products or services in IFSCs under the IFSCA Act, 2019; and
- for any current or capital account transaction permitted under the LRS in a foreign jurisdiction other than an IFSC, made through the foreign currency account held in the IFSC.
One restriction stands out. Resident individuals must not settle domestic transactions with other residents through these accounts. The IFSC account is not a substitute for a rupee account in India.
Some IFSC products are closed to residents altogether. For example, only non-residents may hold the equity shares of Indian companies listed on IFSC exchanges under the direct listing scheme (see Direct listing).
Limits and who is eligible
- Amount. Authorised dealers may freely allow remittances of up to USD 250,000 per financial year (April to March) under the LRS. Remittances to an IFSC account are made under the Scheme, so they count within that limit.
- Who. The Scheme is open to all resident individuals, including minors. It is not available to companies, partnership firms, Hindu undivided families or trusts. Indian entities use the overseas investment rules instead (see Indian groups and overseas investment).
- Unused funds. Paragraph 17 of the Master Direction requires foreign exchange that is received, realised, unspent or unused to be repatriated and surrendered to an authorised person within 180 days, unless it is reinvested.
How the account works at the IBU
- Accounts are held in a specified foreign currency. Individuals may hold current, savings or term deposit accounts.
- Cash transactions are not permitted (regulation 12(1)). Money moves only by bank transfer.
- No interest is paid on current accounts. Interest on savings and term deposits follows the IBU's board-approved interest rate policy.
- Before accepting a deposit from a resident, the IBU must satisfy itself that RBI rules allow it. Expect questions on the purpose of the remittance and the source of funds, alongside the usual KYC under the IFSCA AML, CFT and KYC Guidelines, 2022.
- Deposits of a Banking Unit are insured only to the extent the Deposit Insurance and Credit Guarantee Corporation Act, 1961 applies.
Check before acting
LRS limits and permitted uses are set by the RBI and change from time to time. Confirm the current Master Direction before remitting, and keep records that link each remittance to a permitted purpose. Two further points are often missed:
- Tax. A resident is taxed in India on worldwide income. The reliefs for non-resident investors in GIFT IFSC do not help residents (see Tax for non-resident investors).
- The product's own rules. A fund, broker or global access provider in the IFSC may restrict resident clients to products the LRS permits. See Global access and Residents and the LRS.