It is quite common that the trading of Forex violates the FEMA Act. Furthermore, traders in India often face difficulties with CFD and Gold trading. So, in this article, we will provide a strong solution to do Forex Trading legal in India along with zero tax.
What is GIFT City in India?
GIFT City in India is Gujarat International Finance Tec-City. GIFT City is located between Gandhinagar and Ahmedabad. In simple words, it can be compared as competition and similar to global financial hubs like Dubai’s DIFC, Abu Dhabi’s ADGM, or Singapore’s NBFC.
As the name suggests, you can operate any finance-related business in GIFT City. As a result, whether you are a Fintech startup, a crypto trader, or an auxiliary service provider in the financial field, GIFT City is the right destination to conduct your businesses here. So, if you get Company Registration in GIFT City for Forex Trading, you can get 100% tax exemption on your profits for ten years.
Eligibility for Company Registration in GIFT City for Forex Trading
You must have business in following sectors to be eligible for Company Registration in GIFT City:
- Proprietary Trading: Forex, Gold, and Bullion trading.
- Financial Services: Fund Management, Portfolio Management, and Asset Management.
- Support Services: Fintech startups, call centers, or back-offices for financial services.
- Other Sectors: IT/Software services, BPO/KPO, Shipping, and Aircraft leasing.
What is the solution to FEMA Violations of Forex Trading in India?
Most Indian traders fear FEMA violations as penalties are heavy. Even if forex traders are willing to pay tax, the legality of the payout remains a grey area in India.
Consequently, GIFT City is the ultimate solution to not violate FEMA Act. When you trade through a GIFT City entity, you are trading in the Global Market and not the Indian Domestic Market. So, while you cannot trade Forex on the BSE or NSE domestically, you can trade via the following for Forex Trading:
- NSE/BSE IFSC Exchanges
- International Exchanges: CME, LME, Singapore Stock Exchange, NYSE, and ICE.
Do you need brokers and leverage for Forex Trading in GIFT City?
To start Forex Trading in GIFT City, you need to have brokers or work on broker’s platform. In India, following are the legal brokers for Forex Trading in India:
- International Brokers: Interactive Brokers (IBKR), Phillip Capital, StoneX, Marex, ADM, Saxo Bank, JP Morgan, and Goldman Sachs.
- Indian IFSC Brokers: Edelweiss, Motilal Oswal, SMC, JM Financial, and Global Capital.
Through these brokers, you can legally trade pairs like EUR/USD, USD/JPY, or GBP/USD.
- Regarding Leverage: Leverage depends on the broker, not just the authority in India. In GIFT City, the permissible leverage is as per follows:
- Retail Traders: Usually get around 1:50 leverage.
- Institutional Traders: Can get up to 1:100.
- Commodities: Gold is typically 1:20, and other commodities around 1:15.
How to Setup Business for Forex Trading Legal in India?
- Incorporate: The first step is to form a Company or LLP in GIFT City (similar to the ROC process in India).
- Licensing: The next step is to apply for a license from the IFSCA (International Financial Services Centres Authority). However, you must specify your trade areas (Forex, Gold, CFDs, etc.) while applying for IFSCA License.
- Bank Account: Once you have license and company registration, you can open a bank account with IFSC units of banks like HDFC, ICICI, or Yes Bank.
- Trading: After all of the above steps, you can access international markets and do forex trading without any hesitation.
Important Note: You cannot trade on domestic markets (NSE, BSE, MCX) using a GIFT City IFSC entity.
Taxation: The “10-Year Holiday” Explained for Forex Trading in India
The tax benefit for Forex Trading in India is provided as a deduction under Section 80-LA of the Income Tax Act, rather than a simple exemption.
- Section 80-LA: You can choose any 10 out of 15 years (starting from the year you get your license) to claim a 100% deduction on your income.
- POEM (Place of Effective Management): Usually, if you manage a company from Delhi or Mumbai, it is taxed in India. However, because 80-LA specifically allows this deduction for IFSC units, the POEM risk is mitigated. As long as you have the IFSCA license, your global trading profits can be deducted.
Requirements for Tax Benefits for Forex Trading
- You must furnish a report in the form specified by the CBDT.
- You must submit your IFSCA permission to the Income Tax authorities while ITR Filing.
- ITR Filing must be done timely.
Required Documents for Forex Trading Legal in India
- For Individuals: PAN, Aadhaar, Address Proof, and Photos.
- For Corporate Shareholders: Certificate of Incorporation, MOA, AOA, PAN of the company, and a Board Resolution.
- For IFSCA Licensing: A detailed Business Plan (strategy, risk framework, capital source), Director KYC, Net Worth Certificates (certified by a CA), and 12 months of bank statements.
- Office Space: You must have a physical presence. You can opt for a dedicated office or a co-working space (starting at roughly ₹15,000 – ₹20,000 annually).
Conclusion
In conclusion, If you want to do Forex Trading legal in India, you must have Company Registration in GIFT City. On the other hand, if you want to avoid complications and trade forex fully legal with safety, it is best to move to Dubai and do forex trading in Dubai. Lastly, If you need end-to-end solutions for setting up in GIFT City, Dubai, or Singapore or need more information, feel free to reach out to our team at: 8881-069-069.
If you need further assistance or have any doubts, our experts are here to help you. Call us: 8881-069-069.
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