Module: | MODULE A: INTERNATIONAL BANKING
Q42: Consider the following statements concerning remittances to International Financial Services Centres within India under the Liberalised Remittance Scheme:
Statement 1: Resident individuals are strictly prohibited from making remittances to any International Financial Services Centre located within India, as the scheme is exclusively meant for cross-border foreign transfers.
Statement 2: Funds remitted to an International Financial Services Centre under the scheme can be utilized to invest in securities issued by non-resident entities.
Statement 3: Any funds transferred by a resident to an International Financial Services Centre that remain uninvested for a period of 15 days must be immediately repatriated back to the domestic Indian Rupee account.
Which of the statements given above are incorrect?
Statement 2: Funds remitted to an International Financial Services Centre under the scheme can be utilized to invest in securities issued by non-resident entities.
Statement 3: Any funds transferred by a resident to an International Financial Services Centre that remain uninvested for a period of 15 days must be immediately repatriated back to the domestic Indian Rupee account.
Which of the statements given above are incorrect?
✅ Correct Answer: A
The correct answer is A. Statement 1 is incorrect.
An International Financial Services Centre is a special economic zone within India that is treated as a foreign jurisdiction for the purpose of exchange control laws.
Structurally, the central bank officially amended the rules to permit resident individuals to make remittances to these special centers under their standard 250,000 US Dollars annual limit.
Therefore, Statement 1 is false.
Residents can use these remitted funds specifically for making portfolio investments in foreign securities or for paying fees to foreign educational institutions operating within the center, validating Statement 2. However, to prevent these centers from being used merely as tax havens or idle parking grounds for capital, the central bank introduced a strict temporal rule.
If the remitted funds are not actively deployed into an eligible investment within 15 days of credit into the foreign currency account within the center, the entire uninvested amount must be mandatorily repatriated back to the investor's domestic Indian Rupee bank account.
This makes Statement 3 correct.
An International Financial Services Centre is a special economic zone within India that is treated as a foreign jurisdiction for the purpose of exchange control laws.
Structurally, the central bank officially amended the rules to permit resident individuals to make remittances to these special centers under their standard 250,000 US Dollars annual limit.
Therefore, Statement 1 is false.
Residents can use these remitted funds specifically for making portfolio investments in foreign securities or for paying fees to foreign educational institutions operating within the center, validating Statement 2. However, to prevent these centers from being used merely as tax havens or idle parking grounds for capital, the central bank introduced a strict temporal rule.
If the remitted funds are not actively deployed into an eligible investment within 15 days of credit into the foreign currency account within the center, the entire uninvested amount must be mandatorily repatriated back to the investor's domestic Indian Rupee bank account.
This makes Statement 3 correct.