Can I use LRS to remit money outside India for F&O trading?

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As per the Liberalized Remittance Scheme (LRS), an Indian citizen can send $250,000 per year. Can this amount be used for investments in futures & options (F&O) trading on international listed derivatives. For example, can a trading account be opened with an international broker in foreign geography to trade exchange products such as S&P 500 futures, crude oil options, gold, Comex (F&O market for commodities), etc. What is the taxation if the account is opened in Dubai, UAE or Singapore; jurisdictions which have double taxation avoidance agreement (DTAA) with India? —Name withheld on request Remittances under LRS are allowed only in respect of permissible capital or current account transactions or a combination of both.

However, investment in overseas derivatives is not a permitted capital account transaction since it is prohibited under the overseas portfolio investment rules. Further, transactions in the nature of remittance for margins or margin calls to overseas exchanges/overseas counterparty are also not allowed under LRS. Therefore, you would not be permitted to remit funds under LRS for F&O trading outside India.

As to the question of whether a trading account can be opened with an international broker in foreign geography to trade exchange products, such transaction is not permissible under FEMA (Foreign Exchange Mangement Act) in the first place. However, the fact of illegality is immaterial for the purpose of taxation under the Indian tax law. The tax department is not concerned with the taint of illegality of the income or its source.