Dear @nithin , will you please explain why FII & NRI are trading f&o in nse despite of the fact they have well alternative in Gift city (which have no income tax, gst, stt, etc.).
Hope detailed explanation from your side.
Thanks
In the exchange business, the most important requirement is liquidity or volume. Volume attracts more volume and without volume no one is interested (the chicken and egg problem). Unfortunately, Nifty which trades in NSE IFSC (NSE’s Gift city exchange) doesn’t have enough volume to get large players interested as of now.
By the way, the first question to ask is why GIFT? Why not SGX (Singapore stock exchange)? Why should FIIs or NRIs even bother to bring money to India, when they can easily take derivative trades in Singapore?
Around 50,000 contracts on an average trade on SGX Nifty futures daily, the contract value = $2xNifty price = Rs 75 x 15000 (Nifty price) = ~Rs 22.5 Lks. That is around ~Rs 11,000 crores in value which is almost as much as the value of Nifty futures traded daily on NSE.
Only futures are liquid and not options. Also, many FIIs and NRIs also like to buy stocks, for which they anyways have to move money to India. Many use derivatives mostly to hedge.
Coming back to your question, GIFT city was setup to create a jurisdiction that can compete with the likes of Singapore and Dubai. It is still early days, but the Govt and the Gift city regulator are pushing hard to make it as attractive as possible.
One thing that can make GIFT attractive is that SGX Nifty futures trading is supposed to move to GIFT. This will give impetus to trading volumes at NSE exchange at GIFT. Once this happens more NRI’s and FII’s are bound to look at GIFT city as an option to trade derivatives. The depositories are also setting base in GIFT, which means that in the next few years FIIs and NRI will be able to trade in stocks at GIFT itself.
Hopefully this helps,
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Thanks @nithin ,
Moreover, it’s means if in coming years there is increase in volume(in f&o segment) in nse ifsc, then it’s better for Indian resident to become NRI and trade in gift city to get tax benefits?
Can we form a company in Singapore and trade nifty future on SGX ?
There is no problem of liquidity. AIFs located in GIFT conduct their trades on NSE and BSE and get the same liquidity as other market participants in India," Kamath clarified. However they are subject to the same transaction costs such as Securities Transaction Tax (STT) and Stamp Duty as other market players such as mutual funds and onshore AIFs.
Can you clarify what does this statement above refers to.
Indian residents can’t just become NRI, you will have to stay outside India for more than 181 days. But yeah, if you are an NRI, it would make more sense to transactions in Gift if volumes pick up in the future.
You can form a company, but how will you fund that company? There are rules today that doesn’t allow Indians to setup a company outside just to trade derivatives in India or outside (circumvent FEMA rules around what Indians can do with money sent out from India).
This is for FPIs (Foreign portfolio investors) coming to India. Today they come through Singapore and Mauritius for the tax advantage. GIFT is today offering the same benefits. Check this.
Thanks @nithin
If 1 have income more than 5 cr in a year from options selling (and no other income) then for him it’s better to become NRI (by visiting various countries on tourist visa for more than 181 days), and trade in gift city to take tax benefits (not only income tax but also stt, gst, etc.) while enjoying foreign tour.
If I am wrong then please correct me.
Hmm… yeah, you could always relocate to Srilanka (lower cost of living than India) to become an NRI and trade options on GIFT. 
I think it will be a very long time before options become liquid on GIFT, as I mentioned even after so many years only Nifty futures are liquid at SGX.
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Dear @nithin , thanks for your reply.
Finally it’s means, there is no option for options sellers (having sole source of income) to avoid 43% of income tax & stt, gst, etc. in legitimate way?
If there is, then please guide us.
Thanks
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Open an LLP with a family member as partner and trade options using LLP.
You will save a lot in taxes
Not lucrative dear @Kunal_Gupta1 , still you have to pay 33% of income tax and also stt, gst, etc.
I am looking something like gift ifsc or Singapore or Dubai exchanges.
Dear @nithin , will you please.
Thanks
Hmm… no, there isn’t any way to avoid these legitimately. At least for now.