The starting point: foreign currency
Regulation 4 of the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 reads:
"A financial institution or branch of a financial institution shall conduct such business in such foreign currency and with such persons, whether resident or otherwise, as the concerned Regulatory Authority may determine."
Section 20 of the International Financial Services Centres Authority Act, 2019 adds that every transaction of financial services in an IFSC is to be in such foreign currency as is specified in consultation with the Central Government. The list of specified foreign currencies is in the First Schedule to the IFSCA (Banking) Regulations, 2020.
The result is that foreign currency is the default and the rupee is the exception. A rupee leg is lawful only if a specific permission covers it. Absence of a prohibition is not enough.
The unit's own rupee account
An IFSC unit may open a Special Non-Resident Rupee (SNRR) account with an authorised dealer in India, outside the IFSC. The earlier directions limited its use to items such as rupee administrative expenses outside the IFSC, sale of scrap and government incentives. Since the Foreign Exchange Management (Deposit) (Fifth Amendment) Regulations, 2025 (Notification No. FEMA 5(R)(5)/2025-RB, 14 January 2025), the account may be used for all business-related transactions of the IFSC unit. IFSCA's circular of 29 January 2025 drew this to the attention of all financial institutions in the IFSC.
Rupee payments to IFSCA itself are a separate case: an Indian applicant not yet registered may pay fees in the rupee equivalent at the FBIL reference rate. See fees.
Express permissions involving rupees
- Rupee drawing arrangements (payment service providers). IFSCA's circular of 10 April 2026 requires a payment service provider to obtain IFSCA's prior permission to take part in a Rupee Drawing Arrangement as a non-resident exchange house under RBI's Master Direction on rupee and foreign currency vostro accounts of non-resident exchange houses (1 January 2016). The request must describe the PSP's AML/CFT framework for those transactions. It builds on the circular of 6 June 2025 requiring prior approval to join international payment systems. See rupee drawing arrangements.
- Reinsurance invoices (IFSC Insurance Offices). IFSCA's circular of 27 November 2025 allows an IIO writing reinsurance to invoice Indian insurers, foreign insurers, reinsurers or cedants in the currency of the underlying reinsurance contract, including rupees. But the money received into the IIO's account with an IFSC Banking Unit must be in specified foreign currencies. The invoice currency and the settlement currency can differ. See reinsurance.
- Rupee-denominated instruments settled in foreign currency. Rupee-denominated bonds of Indian companies can trade on IFSC exchanges; the capital gains exemption for non-residents applies where the consideration is paid in foreign currency. See tax for investors.
- Resident individuals. A resident's foreign currency account in an IFSC, opened under the Liberalised Remittance Scheme, must not be used to settle domestic transactions with other residents. See residents and the LRS.
Related restrictions and tax
- Rupee-linked products and Indian investors. Under rule 19(1)(c) of the Overseas Investment Rules, 2022, no person resident in India may make overseas direct investment in a foreign entity, which includes an IFSC entity, that deals with financial products linked to the Indian rupee without specific RBI approval. An Indian group planning such products in its IFSC subsidiary needs that approval first.
- Tax. Income received in rupees is removed from eligible income in the section 147 report, so it falls outside the deduction even if it comes from an approved activity. See the section 147 deduction. The 9 per cent minimum tax rate applies only to a unit whose income is solely in convertible foreign exchange. See MAT and AMT.
Before you rely on this
- List every rupee touchpoint: invoices, fees, salaries, rent, taxes, deposits, settlement of client trades and intra-group charges.
- For each, identify the IFSCA or RBI provision that permits it, and keep that reference on file.
- Route permitted rupee flows through the SNRR account, not the foreign currency accounts with the IFSC Banking Unit.
- Where invoicing in rupees is allowed, check that settlement into the IFSC is still in a specified foreign currency.
- Check the tax effect of any rupee income before the business case is signed off.