Are Prop Firms Legal in India? SEBI, RBI & LRS Rules Explained

The Three Bodies That Matter: SEBI, RBI, and FEMA

To understand prop firm legality in India, you need to understand three regulators and one law:

SEBI (Securities and Exchange Board of India) regulates Indian stock exchanges, brokers, and intermediaries. SEBI's jurisdiction covers entities operating on Indian exchanges (NSE, BSE, MCX). International prop firms that trade on CME/CBOT in the United States do not fall under SEBI's direct regulatory scope. SEBI has not issued any specific regulation targeting prop firm participation by Indian traders.

RBI (Reserve Bank of India) regulates foreign exchange transactions and banking. RBI's role is relevant because you're sending money abroad (to pay evaluation fees) and receiving money from abroad (payouts). Both are governed by the Liberalized Remittance Scheme and FEMA.

FEMA (Foreign Exchange Management Act, 1999) governs all foreign exchange transactions by Indian residents. Under FEMA, sending money to pay for services (prop firm evaluation) and receiving payment for services rendered (trading payouts) are both permissible current account transactions.

The RBI Alert List — What It Actually Says

This is where most confusion comes from. RBI maintains an "Alert List" of unauthorized forex trading platforms. Some prop firms have appeared on this list. But there's critical context:

The key distinction:

*FTMO has proactively restricted Indian traders. FundedNext appeared on the RBI alert list for its forex offerings.

Futures prop firms like Lucid Trading, Topstep, and Apex Trader Funding trade simulated accounts on regulated US exchanges. You never directly trade forex, you never hold real positions, and the firm is paying you a profit-share — not facilitating currency trading. This is a fundamentally different model from what RBI has flagged.

How Indian Prop Traders Are Protected Under LRS

The Liberalized Remittance Scheme is your legal foundation for prop firm participation. Under LRS, Indian residents can remit up to $250,000 per financial year for permissible purposes. These include:

• Payment for services received from abroad
• Education and training expenses
• Gifts and donations
• Investment in equity, debt, and other instruments
• Travel, medical treatment, and maintenance of relatives

Prop firm evaluation fees clearly fall under "payment for services." You're paying a company to evaluate your trading skills and potentially fund an account. This is no different legally from paying for an online course, software subscription, or consulting service from a foreign company.

LRS Compliance Steps

1. Ensure PAN is linked: All LRS remittances require a valid PAN card
2. Stay within limits: $250,000/year covers all LRS purposes combined (prop firm fees are typically $65–$500, well within this)
3. Keep documentation: Invoice from prop firm, bank transfer receipt, purpose declaration
4. TCS awareness: 20% Tax Collected at Source on LRS remittances above ₹7 lakh/year (this is a refundable credit, not extra tax)
5. Report in ITR: Declare any foreign assets (foreign payment platform accounts) in Schedule FA

Receiving Prop Firm Payouts — Is It Legal?

The money flows in through legitimate channels (WorkMarket, Rise, or bank wire) and is subject to Indian income tax. As long as you:

• Receive funds through authorized banking channels
• Declare the income in your ITR under business/professional income
• Pay applicable taxes at your slab rate
• Maintain proper documentation of the source (prop firm agreement, payout receipts)

You are fully compliant. No special permission, license, or registration is needed beyond what's normally required for any foreign income. See our complete tax guide for filing details.

What About SEBI's Warnings on Trading Apps?

SEBI has issued advisories against apps that "gamify" stock market trading or simulate trading using real market data without authorization. This targets fantasy trading apps and unlicensed platforms operating within India — not international prop firms where traders are evaluated on actual futures market skills.

The distinction matters: prop firms don't operate on Indian exchanges, don't require SEBI registration for their operations, and don't offer Indian securities. They're international service providers paying profit-shares to independent contractors.

Firms That Accept Indian Traders (February 2026)

*Apex ₹1,640/mo with 90% off promo. Actual total cost with activation fee: ₹15,000+

What Could Change in the Future?

Regulation evolves. In February 2026, RBI issued new credit rules tightening bank lending to brokers for proprietary trading. However, this targets institutional prop trading within the Indian banking system — not individual traders participating in international prop firms.

Potential risks to monitor:

• RBI expanding the alert list: If RBI adds futures prop firms to the alert list (unlikely given the simulated account model, but possible)
• SEBI new regulations: SEBI could issue guidelines specifically addressing Indian participation in international prop firms
• LRS changes: Any tightening of LRS limits or permissible purposes could impact fee payments
• Tax changes: Government could create specific tax categories for prop firm income

As of February 2026, none of these changes are imminent. The current framework clearly permits Indian residents to participate in international futures prop firms.

How to Protect Yourself as an Indian Prop Trader

1. Stick to futures prop firms trading on regulated exchanges (CME, CBOT). Avoid forex/CFD platforms, especially those on the RBI alert list.
2. Pay through legitimate channels: Use your bank's international debit card, Red Dot Pay, or direct crypto. Never use hawala or informal remittance channels.
3. Declare everything: Report prop firm income in your ITR. Pay applicable taxes. Non-disclosure of foreign income can attract penalties under the Black Money Act.
4. Keep records for 6+ years: Prop firm agreements, payment receipts, payout confirmations, bank statements showing incoming/outgoing transfers.
5. Use one firm at a time initially: Build a track record with one reputable firm before diversifying.
6. Consult a CA: A Chartered Accountant familiar with foreign income can ensure proper classification and filing.

Frequently Asked Questions