Jane in Tax Net: Jane Street Under Tax Department’s Radar — Is This Global Investor Caught in a Deep Web?

Jane in Tax Net: A serious case involving international trading firm Jane Street has recently come to light in India’s stock market, triggering alarm among tax authorities and regulatory agencies. The firm, which reportedly made significant profits in a short span of time, is accused of engaging in trades through its associated entities in India and abroad in a way that allegedly bypasses Indian tax laws. Authorities suspect the entire structure might constitute an “impermissible avoidance arrangement”, and the Income Tax Department is now preparing to investigate it under GAAR (General Anti-Avoidance Rule).

What Does GAAR Say?

Under GAAR, or the General Anti-Avoidance Rule, any business arrangement that is aimed solely at avoiding taxes, lacks commercial substance, or serves no genuine business purpose can be deemed an impermissible tax avoidance scheme.

How Was the Tax Avoidance Allegedly Structured?

Jane Street reportedly used its two Indian entities — JSI Investments and JSI2 Investments — to conduct intraday cash equity trades. These companies would buy stocks in the morning and sell them before the market closed, potentially impacting prices. Simultaneously, its foreign entities based in Singapore and Hong Kong — Jane Street Singapore and Jane Street Asia Trading — carried out large transactions in the options market, where substantial profits were made.

Due to a tax treaty between India and Singapore, the Singapore-based firm paid no taxes on those profits. Meanwhile, the Indian entities either posted losses or showed only minimal profits, resulting in negligible tax liability in India.

Why Might GAAR Be Invoked?

Tax experts argue that this entire setup appears deliberately structured to circumvent Indian tax laws. According to Girish Vanvari, founder of Transaction Square,

“The Indian entities were used to bypass the restrictions on intraday trading placed on FPIs. Such artificial arrangements can easily come under scrutiny under GAAR.”

What Does the SEBI Report Say?

According to a report by SEBI (Securities and Exchange Board of India), Jane Street’s entities in India and abroad were allegedly coordinating trades. If proven, the Indian arms may be classified as dependent agents of the foreign entities, making a portion of the foreign firms’ earnings taxable in India.

Views from Chartered Accountants

Harshal Bhuta, partner at PR Bhuta & Co, remarked: “If it is established that profits were routed to entities benefiting from tax treaties, GAAR could be invoked, and those profits could be reallocated to Indian entities liable to pay tax.”

Suspicion of Mirror Trading

SEBI suspects mirror trading — where one entity buys and another sells in coordination, possibly managed from a single operational center. This deepens the suspicion that the entire structure was a deliberately artificial setup designed to evade taxes.

This case could have serious implications for cross-border investors and the enforcement of GAAR in India. If proven, Jane Street might face significant tax liabilities and regulatory penalties, setting a precedent for tighter scrutiny of foreign trading structures in Indian markets.