About the brokers, I heard sometime back from Webull that they are not allowing Indian residents on their platform now. Correct me if they have changed it recently.
And with Interactive Brokers, they are not allowing options trading for US stocks. Are they? Tradestation which is a subsidiary of Interactive Brokers allow option trading in US but they are charging a very hefty commissions.
About enquiring with CA, please keep us posted if you get any official confirmation from any CA if you happen to enquire with them. Or if you file your ITR with income from overseas options trading with not much hassle.
EDIT: I enquired this just now, and no. They do not support accounts for Indian residents. Sorry for suggesting Webull.
Yes, I heard this about Interactive brokers from one of my friends. I am not sure what is the reason, as they support India and also they have mentioned that in cash account, they do allow options trading on their website.
Also, I have one friend who is using Tradestation for day trading options. And yes, their commissions are very expensive. I wouldnt suggest you to get Tradestation. I would recommend TD Ameritrade.
Will do brother. I have to enquire this sometime anyway.
Just confirming from them, I had called Interactive brokers to enquire if they allow option trading for Indian residents. They said it is not allowed, and their website also says the same.
I do not agree with it completely even if many retailers resort to gambling in the hope of making a fortune. Think if you have a reasonable target of 1 or 1.5% monthly profit, it is not only achievable but safe too. Gambling is perhaps something like hero or zero players. In that sense even equity trading is gambling. My friend bought kwality icecream shares for about 10 lakhs and it is not even 10% of that. He is still not selling in the hope that it will rise one day. Of course it may rise but the point is sitting on the loss for many years. And even if ending in profit it is pure gambling.
Hello, did you find the answer? Im in the same boat and want to be clear if using USA earned income (when an NRI) can be used to trade covered calls and long positions from india… (after becoming indian tax resident) ?
If you are a resident of India and have had no earned income as an NRI (That is still outside India).Then you are out of luck. Thanks for playing. You are screwed by these 2:
LRS (Can’t send money for margin trading)
As per the most recent RBI’s notification No. FEMA.399/RB-2020. Link. Any resident Indian can not post or collect margin without prior approval from RBI (except for a few cases). The terms margin and derivatives are clearly defined by RBI in this notification. So even if you are able to open a cash account in the US, that allows Level 1 and Level 2 option trading strategies, don’t be fooled. It is not a grey area in my opinion. It is quite black and white.
If you are a resident of India but have earned income as an NRI even then RBI’s notification No. FEMA.399/RB-2020 still applies because it applies to all the residents of India. Furthermore, you definitely can not be approved for a margin account by any of the brokerages like IKBR, First Trade etc. Here is a response from First Trade:-
"Apex’s policy change is made in accordance with Reserve Bank of India’s updated Liberalised Remittance Scheme, which includes a prohibition that essentially disallows “remittance from India for margins or margin calls to overseas exchanges/overseas counterparty.”
Since this policy has been implemented at the clearing corporation’s level, brokerages can’t circumvent that even if they wanted to.
Coming to forming an LLC now. Under this notification here, I am of the opinion that a resident Individual can form an LLC overseas. Now the remaining questions are:-
Can this LLC trade in derivatives with funds that were earned by an NRI (not using LRS)?
RBI notification FEMA.399/RB-2020, says prior approval from RBI is required before dealing with derivative contracts. How to seek that approval?
I have asked both of these questions in an RTI to RBI. I have no clue how long an RTI takes or even if I will get some meaningful response. But regardless, I will post the updates here.
Disclaimer:- I am no legal expert by any stretch of imagination. Don’t listen to a random stranger on the internet. Do your own research.
My Personal Feelings - I think it is very unfair to tell people how they can and can not spend their money, which they have paid proper taxes on. If some one wants to make bad decisions then they should be allowed to do so. That is freedom. Not looking to argue. Let’s agree to disagree. Feel free to comment on anything above though.
one creates a C-Corp (which is like a Pvt. Ltd., that Non-Resident Aliens can create and own). C-Corps get their own EIN number.
Fund it with your savings that was earned while you were an NRI.
Open a corporate account (say in Interactive Brokers) and invest / trade derivatives. (From what I understand US has no ambiguity in allowing any entity structure - LLC, C-Corp, S-Corp, etc, from trading almost anything, unlike all the bureaucratic red tape in India)
If needed pay salaries to yourself and your family members in Indian accounts (This is an expense to C-Corp, so save taxes on the payout) but taxable at the hands of recipients in India.
I have asked RBI about a JV/WOS and not just about an LLC. So let’s see what they say. On the operational side of things though, I looked into creating a C-Corp, but that was quite tedious - need to hold a meeting, need to have bylaws and a bunch of other crap. It’s possible though.
Another option is to create a single member LLC, but get it treated like a corporation by filing form 8832. In my opinion, this way we avoid the hassle of a C-Corp and still get the benefits that you mentioned above. I will check my understanding on some one from the US side once I get this whole RBI mess untangled.
I am trying to see if what I am doing is right rather than what I am doing is not wrong.
This is good info. Thanks.
Quick question- instead of margin products. Can the nri money earned outside( while one was nri) be used for buying calls and put and popening covered call positions?? Bdw, i think Charles schwab does allow indian tax residents for these type of non margin options trades (long and covered) … your thoughts?
As per RBI notification No. FEMA.399/RB-2020. Link, this is the definition of a derivative and Margin:
“Derivative” means a financial contract, to be settled at a future date, whose value is derived from one or more financial, or non-financial variables.
“Margin” means the collateral that the parties to a derivative contract post with or collect from each other (whether directly or through a third party) to cover some or all of the credit risk that the provider of the collateral poses for the receiver of the collateral;
Now here’s what’s not permitted:-
No person shall post or collect margin for derivative contracts and pay or receive interest on such margin without the prior permission of the Reserve Bank.
In my opinion, in a covered call, you are by definition putting your underlying shares up as collateral. Furthermore, RBI has only explicitly permitted 3 types of derivative contracts (Look at “Permitted derivative contract” section of the notification), so buying a call or a put is not allowed either. That would be my interpretation of course.
So even if a brokerage allows level 1 and level 2 option trading strategies in a cash account, I don’t see them explicitly being mentioned by the RBI as a “Permitted derivative contract”.
What I can firmly understand is that it’s quite a bit critical to do this from India current;y maybe in a couple of years to come this might change. Either you stay in India and trade Indian markets and pay your “fair” share of taxes.
Or you move to some other country and trade international markets only
