The Reserve Bank of India recently expanded the scope of remittances to International Financial Services Centres (IFSCs) and allowed Indian residents to open foreign currency accounts at the country’s first IFSC, Gujarat International Finance Tec-City, also known as GIFT City.
Indian residents are now allowed to open Foreign Currency Accounts (FCA) in dollars in a bank account with GIFT IFSC. This money can be used for portfolio investments abroad, buying international properties, insurance, sending gifts to friends abroad, supporting relatives abroad, investing in fixed deposits, repaying student loans and funding foreign travel.
Previously, LRS remittances to IFSCs were limited to investments in IFSC securities (excluding investments by non-IFSC entities) and tuition fees for foreign universities or institutions in IFSCs.
Namita Das, corporate partner at Dentons Link Legal, says the move will increase GIFT City’s attractiveness as a financial centre and incentivise greater domestic participation, particularly from high net worth individuals (HNWIs).
The move is also expected to create a thriving private client practice in GIFT City as law firms increase their presence in the region to meet the growing demands of high net worth individuals seeking improved access to overseas markets and better management of their wealth portfolios.
HOW DOES THIS IMPACT THE ABILITY OF HNWIs TO MANAGE THEIR INVESTMENTS IN GIFT CITY?
The liberalization of LRS regulations allows Indian residents to open FCAs in IFSCs for various purposes, providing more flexibility to Indian residents in managing their foreign exchange transactions and facilitating smooth remittances. It enables HNWIs to manage their wealth more strategically by facilitating cross-border transactions within the existing LRS limit of USD 250,000.
“By allowing fixed deposits in foreign currencies such as the US dollar at GIFT IFSC, HNWIs can hedge against inflation and currency depreciation, protect their assets from rupee volatility while potentially earning higher returns. Moreover, the ability to conduct transactions in foreign jurisdictions through FCAs at IFSCs provides greater flexibility and control over global investments, facilitating diversification and access to a wider range of financial products,” says Das.
“While the current LRS limit is $250,000 per financial year, this development could lead to further liberalisation and possibly higher limits in the future,” she adds.
WHAT IMPACT IS THIS LIKELY TO HAVE ON GIFT CITY?
The change is also intended to increase the attractiveness of GIFT City as a financial centre and bring it into line with global standards in order to better compete with other IFSCs worldwide.
This indicates that GIFT City’s role as a gateway for cross-border investment and financial diversification will be strengthened by providing resident individuals with access to global markets and the ability to manage foreign currency assets directly from the GIFT IFSC.
“Previously, the regulatory complexities and inconsistencies between GIFT City and other global financial centres deterred investors who were accustomed to more streamlined processes. The recent changes address this issue by improving transaction ease and expanding investment opportunities within GIFT City. This alignment with other global financial centres positions GIFT City as a competitive, integrated financial ecosystem that meets international standards and makes it more attractive to global investors and HNWIs,” explains Das.
WHAT DOES THIS MEAN FOR THE GROWING LEGAL INDUSTRY IN GIFT CITY?
With more investments expected to come from Indian residents, the expanded program will create a demand for private client lawyers (PCPs) to assist their clients with foreign exchange management regulations under the Foreign Exchange Management Act (FEMA), increased tax and compliance work, and transaction structuring.
More and more law firms are considering opening their own GIFT City-focused practice, including Dentons Link Legal, which opened at the IFSC in June this year and has specialists in banking and finance, corporate law, tax and PCP, as they compete for a larger share of the growing market.
This explains that lawyers can assist clients investing in GIFT City under the LRS by ensuring compliance with regulatory frameworks such as FEMA, advising on tax implications and structuring investments accordingly.
Further work also comes from advising clients on the complexities of the GIFT City regulations, including the benefits of the Special Economic Zone, and assisting in obtaining the necessary approvals from the Indian authorities.
Legal experts also conduct due diligence, mitigate risk and handle cross-border matters, including repatriation of funds and ongoing compliance with evolving regulations, ensuring investments are both legally sound and optimized for maximum benefit.
“The new framework enhances the private client practice and requires lawyers to offer sophisticated advice on global wealth management, cross-border transactions, regulatory compliance and estate planning through GIFT City,” Das says.
“With increased access to global markets and foreign currency accounts, clients face more complex legal challenges that require a deeper understanding of international financial instruments in Indian law. This shift is leading to the private client practice becoming more specialised and global in scope, tailored to HNWIs leveraging GIFT City’s expanded financial landscape,” she explains.
