The rules of the Bar Council of India prohibit law firms from advertising and soliciting work through communication in the public domain. This website is meant solely for the purpose of information and not for the purpose of advertising. Kings & Alliance LLP does not intend to solicit clients through this website. We do not take responsibility for decisions taken by the reader based solely on the information provided in the website. By clicking on ‘ENTER’, the visitor acknowledges that the information provided in the website (a) does not amount to advertising or solicitation and (b) is meant only for his/her understanding about our activities and who we are.
By continuing to use this site you consent to the use of cookies on your device as described in our Cookie Policy
Introduction
In a powerful move to deepen India’s integration with the global economy and significantly enhance the ease of cross-border trade and payments, the Reserve Bank of India (RBI) has enacted significant amendments to its core Foreign Exchange Management Act (FEMA) regulations. Breaking from conventional norms, these strategic updates are meticulously designed to inject greater flexibility into trade financing and decisively streamline export-related transactions. The comprehensive reforms focus on two critical pillars: a crucial extension of the timelines for repatriating export proceeds, offering exporters vital breathing room, and the proactive facilitation of lending in Indian Rupees (INR) to neighboring countries, reinforcing regional financial linkages and trade. This regulatory shift signals the RBI’s determined commitment to creating a future-ready, competitive foreign exchange framework.
This Regulatory Update, issued on October 6, 2025, signals the RBI’s objective to align the foreign exchange framework with the evolving needs of external trade.
Extension of Repatriation Period for Export Proceeds
The most prominent change relates to the period within which exporters must utilize or repatriate their foreign currency earnings. The RBI has amended the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015, creating a new, more flexible regime for specific accounts.
Crucially, the amendment clarifies that foreign currency accounts opened in International Financial Services Centres (IFSCs) will now be treated as accounts “outside India” for regulatory purposes. Under the new provision, exporters are allowed to retain export proceeds in foreign currency accounts maintained with banks in IFSCs for an extended period of up to three months from the date of receipt of funds. This three-month period will be calculated after accounting for any forward commitments and must be used for paying for imports into India or eventual repatriation into the country.
However, for foreign currency accounts maintained with banks in jurisdictions other than IFSCs, the existing rule requiring utilization or repatriation of funds within one month continues to apply.
Enhanced Flexibility: The Strategic Advantage of IFSC Accounts
This regulatory adjustment is expected to provide greater operational flexibility, particularly for exporters dealing with high-value foreign currency transactions, such as those in the gems and jewelry sector, where extended retention periods can support smoother financial management and settlement cycles. The previous regulatory framework, specifically the Exchange Earners’ Foreign Currency (EEFC) account scheme, often required exporters to convert non-utilized balances into Indian Rupees by the end of the following month. This typically resulted in frequent, sub-optimal conversions, increased exchange rate risks, and a higher administrative workload.
By permitting the holding of export proceeds for up to three months in IFSC-based accounts, exporters can now better manage their foreign currency exposure, significantly reduce conversion-related costs, and optimize their treasury operations. Industry observers have lauded the measure as a pragmatic step, aligning India’s foreign exchange regime with international best practices and strengthening the role of IFSCs as key hubs for trade-related financial activities.
Compliance Requirements and Caution
While the new framework introduces a welcome degree of flexibility, the RBI maintains rigorous compliance standards. Exporters maintaining accounts outside IFSCs must strictly adhere to the existing one-month repatriation requirement. Furthermore, even with the new freedom, compliance obligations for IFSC accounts remain rigorous. Exporters are required to ensure that these accounts are used solely for legitimate export-related transactions, supported by complete documentation and trade-linked records.
Adherence to Know Your Customer (KYC) norms and the maintenance of transparent audit trails are critical. Any misuse of funds or delay in repatriation beyond the stipulated three-month period could attract regulatory scrutiny and potential enforcement action from the authorities.
Conclusion
The recent amendments reflect India’s clear focus on streamlining foreign exchange operations and enhancing overall trade facilitation. The two-pronged approach expanding INR-based lending to neighboring economies and extending flexibility for exporters in managing foreign currency accounts reinforces India’s strategy. This pivotal step supports external trade, fosters stronger regional financial linkages, and cements the growing ecosystem of the IFSCs as a vital component of the nation’s financial gateway. Going forward, clear compliance guidelines and greater exporter awareness will be paramount for effective implementation under the overarching FEMA framework.
Expositor(s): Adv. Archana Shukla
