Background
In recent years, the Indian government has made significant strides toward enhancing the operational framework of the International Financial Services Centre at Gujarat International Finance Tec-City (“GIFT-IFSC”). GIFT-IFSC was established with an aim to redirect all financial transactions conducted by residents in foreign financial centres to India. By virtue of RBI circular[1] titled ‘Operational guidelines on International Financial Services Centre (IFSC)’ dated March 31, 2015, GIFT-IFSC is deemed as an offshore jurisdiction under the Foreign Exchange (Management) Act, 1999. However, due to the restrictive nature of the Liberalised Remittance Scheme (“LRS”), there were not many GIFT-IFSC products marketable to Indian residents. In order to cement the status of GIFT-IFSC as a viable financial centre for Indian residents and pursuant to feedback received from various stakeholders, the Reserve Bank of India (“RBI”) vide a circular dated July 10, 2024 (“LRS Circular”) permitted Indian residents to remit money to GIFT-IFSC for all permissible purposes under the Master Direction- Liberalised Remittance Scheme, 2016[2] (“LRS Master Direction”). Detailed analysis on the LRS Circular and its implications on GIFT-IFSC can be found here.
Scope of LRS widened vis-à-vis GIFT-IFSC
Prior to issuance of the LRS Circular, Indian residents could remit money to GIFT-IFSC only for three purposes: (i) investment in securities in IFSC, (ii) payment of fees to universities set up in GIFT-IFSC, and (iii) opening a foreign currency account in GIFT-IFSC. Post issuance of the LRS Circular, Indian residents are now permitted to remit funds to GIFT-IFSC for all permissible purposes under LRS for:
- availing financial services or financial products in accordance with the International Financial Services Centres Authority Act, 2019 (“IFSCA Act”); and
- conducting all current and capital account transactions in foreign jurisdictions (excluding IFSCs) via a Foreign Currency Account held in IFSC.
As these changes take effect, the question arises whether all financial services or products, as defined under the IFSCA Act which includes insurance, can be availed by Indian residents.
Insurance vis-à-vis the LRS Master Direction
The remittance by residents for insurance is governed by inter alia Foreign Exchange Management (Insurance) Regulations, 2015[3] (“FEMA Regulations”). The FEMA Regulations read with the LRS Master Direction stipulates that a resident may take or continue to hold a health insurance policy issued by an insurer outside India provided the aggregate remittance, including the amount of premium, does not exceed USD 250,000.
However, to purchase insurance policies other than health insurance, explicit permission is required to be taken from the Insurance Regulatory Development Authority of India (“IRDAI”), the Central Government or the RBI (collectively, “Approving Authorities”). For instance, in terms of Section 2CB of the Insurance Act, 1938 and the FEMA Regulations, Indian residents require prior approval of the IRDAI to purchase or renew any insurance policy in respect of any property in India or any ship, other vessel or aircraft registered in India with an insurer outside India. With respect to general insurance policies issued by an insurer outside India other than the ones discussed above, a specific or general permission of the Central Goverment is required. Similarly, in terms of Para B(i) of Annex II of the FEMA Regulations, Indian residents require specific or general permission of the RBI to purchase or hold a life insurance policy issued by an insurer outside India.
Below is a table highlighting the permission required for various policies:
| Sr. No. | Insurance Type | Approving Authority |
| Health Insurance | None | |
| Insurance for any property in India or a ship, vessel or aircraft registered in India | IRDAI | |
| General Insurance (other than the policies referred in (i) and (ii) above) | Central Government | |
| Life Insurance | RBI |
Whether Indian residents can procure insurance policies from an IFSC Insurance Office?
The FEMA Regulations, read with the LRS Master Direction, prohibit the purchase of general and life insurance policies without obtaining specific or general permission from the Approving Authorities (as applicable).
While the LRS Circular facilitates remittances for financial services or products as defined under the IFSCA Act, it operates within the confines of “permissible purposes under LRS”. In other words, the phrase “permissible purposes under FEMA” acts as a qualifier for any remittance under the LRS route to GIFT-IFSC. According to the FEMA Regulations, purchasing general and life insurance policies is a permissible activity, subject to approval from Approving Authorities. Thus, a harmonious interpretation of the LRS Circular, FEMA Regulations and LRS Master Direction is essential to interpret the LRS Circular in so far as purchase of insurance policies by Indian residents from GIFT-IFSC is concerned. The LRS Circular aims to bring parity between GIFT-IFSC and other offshore jurisdictions Thus, the LRS Circular prohibits Indian residents from remitting money to GIFT-IFSC for a purpose that would not have otherwise permitted them to remit money to an offshore jurisdiction.
If the RBI intends to permit Indian residents to purchase dollar-denominated life insurance policies from GIFT-IFSC without prior approval, then a clarification is necessary along with appropriate modifications in the FEMA Regulations.
Conclusion
The LRS Circular represents a pivotal shift in the financial landscape for GIFT-IFSC. This development has been embraced by the industry as it fosters the financial ecosystem at GIFT-IFSC by bringing it at parity with other offshore jurisdictions.
Overall, the developments heralded by the LRS Circular have the potential to transform the financial services sector in GIFT-IFSC and achieving this goal will depend on further policy direction.
For further information, please contact:
Pranjita Barman, Partner, Cyril Amarchand Mangaldas
pranjita.barman@cyrilshroff.com
[1] Available at: Reserve Bank of India – Index To RBI Circulars.
[2] Available at: https://rbi.org.in/scripts/BS_ViewMasDirections.aspx?id=10192.
[3] Available at: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10265&Mode=0.
