Foreign-Currency Accounts and Deposits at IFSC Banking Units
A closer look at a resident's foreign-currency account and deposits with an IFSC banking unit: how the account is funded, the limit on deposit tenure, why there is no DICGC cover, how interest is taxed, and how the exchange rate changes the rupee value.
The account
A resident individual may hold a foreign-currency account with a banking unit in the GIFT IFSC. It is funded by remittance under RBI's Liberalised Remittance Scheme (LRS), so every amount sent to it counts towards the annual LRS limit of USD 250,000 (as at October 2026).
The account cannot be used to settle domestic transactions with other residents, and funds lying idle, that is, not invested, for 180 days must be repatriated to India.
Deposits: less than 180 days
Fixed deposits offered to residents at IFSC banking units must have a tenure of less than 180 days (IFSCA circular, 13 December 2024). Multi-year foreign-currency deposits are therefore not available to residents.
Descriptions of resident deposits in the IFSC running from six months to five years are wrong.
No deposit insurance
In the domestic banking system, DICGC deposit insurance protects deposits up to ₹5 lakh per depositor per bank. Deposits with IFSC banking units are treated as deposits received outside India, so that cover does not apply to them.
A deposit with an IFSC banking unit therefore does not have the DICGC cover that a domestic deposit has.
Interest, tax and the exchange rate
Interest is taxable in India under the normal rules: a resident is taxed on worldwide income, so the interest is added to total income and taxed at the slab rate.
The deposit and its interest are in foreign currency. Their rupee value rises if the rupee weakens and falls if the rupee strengthens. Over a short deposit, a move in the exchange rate can be larger than the interest earned, in either direction.
Rules at a glance
The three-year dollar deposit that is not on offer
Imran, 44, a resident in Lucknow, has read about dollar fixed deposits in GIFT City and asks for one that runs for three years.
That is not available to him as a resident: a fixed deposit offered to him must run for less than 180 days. When it matures, the money is back in his account; if it then lies idle, that is, not invested, for 180 days, it must be repatriated to India.
Interest earned, exchange rate moved
- A resident places USD 12,000 in a deposit when the exchange rate is ₹85 per dollar: 12,000 × 85 = ₹10,20,000. The rates and the interest amount are assumptions for the example, not forecasts.
- At maturity the banking unit pays back USD 12,000 plus interest of USD 120, a total of USD 12,120.
- If the rate at maturity is ₹83 per dollar: 12,120 × 83 = ₹10,05,960, which is ₹10,20,000 − ₹10,05,960 = ₹14,040 less than the starting rupee value, despite the interest.
- If the rate at maturity is ₹87 per dollar: 12,120 × 87 = ₹10,54,440, which is ₹10,54,440 − ₹10,20,000 = ₹34,440 more.
Result. The dollar amount received is USD 12,120 in both cases; the rupee outcome depends on the exchange rate. Tax on the interest and bank charges are ignored here.
Key points
- The account is funded under LRS and cannot be used to settle domestic transactions with other residents.
- Fixed deposits offered to residents at IFSC banking units must have a tenure of less than 180 days, and funds lying idle (not invested) for 180 days must be repatriated to India.
- IFSC deposits are treated as deposits received outside India and are not covered by DICGC deposit insurance.
- Interest is taxable in India at the slab rate, and the rupee value of the deposit moves up or down with the exchange rate.
Common misunderstandings
- Residents cannot place multi-year foreign-currency fixed deposits at IFSC banking units: the tenure offered to them must be less than 180 days.
- DICGC's ₹5 lakh cover does not extend to IFSC banking units: deposits there are treated as deposits received outside India.
- A dollar deposit is not free of loss in rupee terms: if the rupee strengthens, its rupee value falls, and the fall can exceed the interest.
Questions people ask
Does the dollar amount of the deposit change when the exchange rate moves?
No. The dollar amount is unchanged; only its value in rupees moves, up if the rupee weakens and down if it strengthens.
Can the account be used to pay a person or business in India?
No. It cannot be used to settle domestic transactions with other residents; those go through the domestic rupee banking system.
Is a large deposit covered by DICGC at least up to ₹5 lakh?
No. DICGC cover does not apply to deposits held with IFSC banking units at all.
What this lesson relies on
- IFSCA circular of 13 December 2024 on foreign-currency accounts of resident individuals with IFSC banking units
- RBI A.P. (DIR Series) circular of 10 July 2024 on foreign-currency accounts of resident individuals with IFSC banking units under LRS
- RBI — Liberalised Remittance Scheme (RBI FAQ on LRS)
- Deposit Insurance and Credit Guarantee Corporation (DICGC) — deposit insurance cover
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.