Resident Individuals and GIFT IFSC: What the Liberalised Remittance Scheme (LRS) Now Permits

For a resident individual, GIFT IFSC presents a paradox. It is in Gujarat, but a financial institution there is treated as a person resident outside India for foreign exchange purposes (Article 2). Money moving from a resident’s savings account in Ahmedabad to an account in GIFT IFSC is therefore an outward remittance, governed by the same scheme that applies to sending money to Singapore or London: the Liberalised Remittance Scheme (LRS). What has changed, and what most commentary still gets wrong, is how wide that permission now is.

The Scheme in Outline

LRS operates under the Foreign Exchange Management Act, 1999 and is administered through the RBI’s Master Direction No. 7/2015-16, last updated on 6 September 2024. A resident individual may remit up to USD 250,000 per financial year across all permitted current and capital account transactions.

What Paragraph 11 of the Master Direction now Says

The IFSC-specific permission is in paragraph 11. Authorised persons may facilitate remittances to IFSCs in India for all permissible purposes under LRS for:

• availing financial services or financial products as per the IFSCA Act, 2019 within IFSCs; and
• all current or capital account transactions, in any other foreign jurisdiction other than IFSCs, through a foreign currency account (FCA) held in an IFSC.

Resident individuals may open an FCA in an IFSC for these purposes.

The second limb is the structurally interesting one. It makes the IFSC account a conduit: an individual may remit under LRS into an FCA in GIFT IFSC and then use that account for permitted transactions in any other foreign jurisdiction. The IFSC is not only a destination for investment; it can be the individual’s offshore banking base.

One express prohibition accompanies this: “Resident individuals shall not settle any domestic transactions with other residents through these FCAs held in IFSC.” The account is for outbound and offshore use, not for settling rupee obligations between residents.

How the Permission Widened

The current position is the product of successive liberalisation. The original 2021 permission was narrow: remittances to IFSCs were allowed for investment in IFSC securities, excluding securities issued by persons resident in India outside the IFSC, and a subsequent circular permitted payment of education fees to foreign universities or institutions in IFSCs. The RBI’s circular of 10 July 2024 replaced that narrow list with the “all permissible purposes” formulation that now appears in the Master Direction.

The practical effect is that an individual’s remittance to GIFT IFSC no longer has to be fitted into a specific enumerated purpose. It must, however, still be a purpose permissible under LRS generally. Transactions prohibited under LRS, such as those in the prohibited categories under the current account rules, remain prohibited when routed through an IFSC.

The Investment Overlay: ODI, OPI and Schedule V

Where the remittance is for investment, a second framework applies: the Foreign Exchange Management (Overseas Investment) Rules, 2022 and the RBI’s Overseas Investment Directions, 2022. Because an IFSC entity is treated as being outside India, investing in it is an overseas investment.

Paragraph 24 of the Directions deals specifically with investment in an IFSC by a person resident in India, and applies Schedule V of the OI Rules. Two points are significant for individuals.

Units of IFSC funds are overseas portfolio investment. Investment, including sponsor contribution, in the units of an investment fund or vehicle set up in an IFSC is treated as OPI. For resident individuals, OPI is made within the overall LRS limit. An investment in a GIFT IFSC fund therefore consumes LRS headroom in the same way as any other overseas investment.

Restrictions that apply elsewhere are relaxed for the IFSC. The Directions state that the restriction confining a resident individual’s overseas direct investment to an operating foreign entity, and the restriction against ODI in a foreign entity engaged in financial services activity, do not apply to an investment in an IFSC. The relaxation has express limits: the investment may not be made in a foreign entity engaged in banking or insurance. An IFSC entity in which a resident individual invests may have a subsidiary or step-down subsidiary in the IFSC, and may have one outside the IFSC where the resident individual does not have control. An individual who has made ODI without control may not later acquire control in an entity that has since set up or acquired a subsidiary outside India.

There is, in short, a genuinely wider door into GIFT IFSC than into other overseas jurisdictions for individuals, provided the entity is not a bank or insurer and the control conditions are respected.

Tax Collected at Source: A Cash-Flow Point, Not a Cost

Remittances under LRS attract tax collected at source. Under section 394(1) of the Income-tax Act, 2025 (Table, Sl. No. 7), TCS applies to LRS remittances where the amount or aggregate exceeds ₹10 lakh in a year, at 5% where the purpose is education or medical treatment and 20% for other purposes. The Finance Act, 2026 reduced the education and medical rate to 2% with effect from 1 April 2026.

TCS is collected by the authorised dealer and is creditable against the remitter’s income-tax liability. It is a timing cost rather than a permanent one, but for a large investment remittance the 20% rate is a material cash-flow consideration, and it applies to remittances into GIFT IFSC just as to any other LRS remittance.

A Practical Sequence

1. Confirm the purpose is permissible under LRS. The 2024 widening did not create new categories of permitted transaction; it removed the IFSC-specific narrowing.
2. Open the FCA with an IFSC Banking Unit if the funds are to be held or deployed offshore, and note that the account cannot be used to settle transactions with other residents.
3. Classify the investment. Units of an IFSC fund are OPI; equity in an IFSC operating entity may be ODI. The classification determines the reporting obligations under the OI framework.
4. Check the banking and insurance exclusion before investing in an IFSC entity as an individual.
5. Budget for TCS on remittances above the ₹10 lakh threshold and retain evidence for credit.
6. Track the annual limit across all LRS uses, since investment, travel, education and maintenance of relatives draw on the same USD 250,000.

What this Does Not Change

Remitting under LRS does not alter the tax residence of the individual, and income earned on IFSC investments remains taxable in India in the resident’s hands under the ordinary rules. The Schedule VI exemptions discussed in Article 7 are, by their terms, directed at non-residents and specified funds, not at resident individual investors. Nor does the LRS route displace the obligation of the IFSC entity to comply with its own KYC and AML requirements (Article 35).

As at 17 September 2026, the framework described above is in force. Because the LRS and overseas investment positions are set by RBI instruments that are amended by circular, the Master Direction and the Directions should be checked in their current updated form before a remittance.

Frequently Asked Questions

1. What is the LRS limit for investing in GIFT IFSC?

Resident individuals may remit up to USD 250,000 per financial year under the Liberalised Remittance Scheme (LRS), subject to applicable RBI rules.

2. Can resident Indians open a foreign currency account in GIFT IFSC?

Yes. Resident individuals may open a foreign currency account (FCA) in an IFSC for purposes permitted under paragraph 11 of the RBI Master Direction.

3. Can residents invest in GIFT IFSC funds under LRS?

Yes. Investment in units of an investment fund or vehicle set up in an IFSC is treated as overseas portfolio investment (OPI) and counts towards the LRS limit.

4. Is TCS applicable to LRS remittances to GIFT IFSC?

Yes. TCS generally applies to qualifying LRS remittances exceeding ₹10 lakh in a financial year, at the rate applicable to the purpose of the remittance.

5. Can an IFSC foreign currency account be used for domestic transactions?

No. Resident individuals cannot use these accounts to settle domestic transactions with other residents.