RBI Amends FEMA Rules, Triples Forex Retention Period for Exporters with IFSC Accounts

New Delhi – In a significant move aimed at bolstering India's International Financial Services Centres (IFSCs) and providing greater operational flexibility to exporters, the Reserve Bank of India (RBI) has amended key provisions of the Foreign Exchange Management Act (FEMA). The Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) (Seventh Amendment) Regulations, 2025, which came into effect on October 6, 2025, introduces crucial changes that triple the permissible period for exporters to hold foreign currency in IFSC-based accounts.

The amendment primarily substitutes sub-regulation (CA) of Regulation 5 of the 2015 Principal Regulations, creating a tiered system for the repatriation of export proceeds. This reform is widely seen as a strategic step to deepen India's domestic foreign exchange market and enhance the global competitiveness of its IFSCs, such as the Gujarat International Finance Tec-City (GIFT City).

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Key Amendments: A New Framework for Exporters

The core of the reform lies in the revised timeline for the utilisation or repatriation of funds held in foreign currency accounts outside India. Under the new framework, the RBI establishes a clear jurisdictional distinction, offering a significant advantage to exporters who bank within an IFSC.

The newly substituted provision stipulates that an exporter resident in India may hold export proceeds or advance remittances in a foreign currency account for a period not exceeding:

1. Three months from the date of receipt, for accounts maintained with banks located in an IFSC.
2. The end of the next month from the date of receipt, for accounts maintained in all other foreign jurisdictions.

This marks a substantial relaxation from the previous uniform rule, which required exporters to utilise or repatriate funds within one month of receipt, regardless of where the account was held.

"This is a significant relaxation for IFSC accounts," a legal analysis from Saga Legal notes. "Exporters maintaining foreign currency accounts with banks located in IFSC may now retain export proceeds for a period of up to three months, as against the earlier limit of one month. This provides exporters with greater operational flexibility for meeting import obligations and managing foreign exchange exposures."

The funds held in these accounts can be used for making payments towards imports into India or must be repatriated within the stipulated timeline. This must be done after adjusting for any forward commitments and in compliance with the broader realisation requirements under the Foreign Exchange Management (Export of Goods and Services) Regulations, 2015.

Resolving Ambiguity: Legal Recognition of IFSCs under FEMA

Beyond extending timelines, the amendment addresses a long-standing interpretive challenge concerning the legal status of IFSCs under FEMA. Historically, FEMA regulations distinguished between transactions "in India" and "outside India," creating a grey area for IFSCs, which are geographically within India but are treated as offshore financial centres for regulatory purposes.

The RBI has now eliminated this ambiguity through two key insertions:

• Inclusion of a Definition: A new clause has been added to Regulation 2 of the Principal Regulations, formally defining an "International Financial Services Centre" by referencing the definition in the International Financial Services Centres Authority Act, 2019 (IFSCA Act). This creates a direct statutory link, ensuring regulatory consistency.
• A Clarificatory Explanation: A crucial explanation has been added at the end of Regulation 5, stating: "For the purpose of regulation 5, the foreign currency accounts permitted to be opened ‘outside India/abroad’ can also be opened in IFSC."

This clarification unequivocally confirms that for the purposes of holding foreign currency, an IFSC is legally deemed equivalent to a jurisdiction "outside India." This provides much-needed certainty for businesses and financial institutions, removing potential compliance risks and interpretive hurdles.

As legal experts point out, this formal recognition aligns FEMA’s foreign currency regime with India’s evolving financial architecture and represents a pivotal step in integrating IFSCs into the national regulatory framework.

Legal and Policy Rationale: Strengthening the IFSC Ecosystem

The amendment reflects a clear policy directive to incentivise the use of Indian IFSCs over traditional offshore banking hubs. By creating a regulatory advantage—the extended three-month retention period—the RBI aims to attract more export-related banking business to GIFT City and other future IFSCs. This is expected to not only deepen the foreign exchange ecosystem within India but also ensure that such transactions remain under the purview of Indian regulators.

From a legal standpoint, the reform is a forward-looking measure. The new rules also introduce "dynamic cross-referencing" by referring to the Export of Goods and Services Regulations "as amended from time to time." This subtle but important change ensures the regulation remains current without requiring further technical amendments each time the underlying export rules are updated, thereby promoting regulatory stability.

The extended retention period aligns India’s framework more closely with international trade and settlement practices. It provides exporters with a longer window to manage their cash flows, hedge against currency fluctuations, and settle import liabilities directly from their export earnings, thereby reducing transactional costs and administrative burdens.

Implications for Legal and Business Communities

For legal practitioners advising clients in international trade, finance, and corporate law, these amendments necessitate a careful review of existing structures and compliance policies.

• For Exporters: The change offers a strategic advantage. Businesses can now better manage their foreign currency exposures and working capital by holding funds in an IFSC account for up to 90 days. This provides more time to plan for import payments, raw material procurement, and other foreign currency-denominated expenses without the pressure of immediate repatriation.
• For Financial Institutions: Banks operating within IFSCs gain a significant competitive edge in attracting business from India's large export community. They can now offer more flexible cash management solutions and forex services.
• For Legal Advisors: Corporate and FEMA lawyers will play a key role in advising clients on the benefits of shifting their foreign currency operations to IFSCs. This includes guidance on opening accounts, structuring transactions, and ensuring compliance with the amended regulations. The legal certainty provided by the amendment simplifies the advisory process significantly.

In conclusion, the RBI's Seventh Amendment is a nuanced yet impactful reform. It skillfully blends policy objectives with legal clarity, creating a more efficient and attractive regulatory environment for foreign exchange management. By empowering exporters with greater flexibility and formally integrating IFSCs into the FEMA framework, the RBI has taken a decisive step toward strengthening India’s position as a global financial and trading hub.