Was it smart trading or a tax dodge? Jane Street is in the taxman’s firing line now

Jane Street, the global trading firm under regulatory heat in India, may now face a fresh front: the Income Tax (I-T) department. As reported by The Economic Times, authorities are examining whether Jane Street’s India strategy qualifies as an “impermissible avoidance arrangement” under the General Anti-Avoidance Rule (GAAR). If so, it could lead to a major tax blow for the firm.

Here’s what it means and why it matters.

Jane Street’s operations involved four key entities—two based in India (JSI Investments and JSI2 Investments) and two foreign portfolio investors (FPIs) registered in Singapore and Hong Kong. The Indian arms took intra-day positions in the cash and futures markets, buying and selling within the same day. Meanwhile, the offshore FPIs placed large bets in index options. Crucially, the big profits were booked offshore—particularly in Singapore—where derivative gains are tax-exempt under the India-Singapore tax treaty.

The I-T concern is this: was this structure built just to avoid paying taxes in India?

Under GAAR, any setup that lacks “commercial substance” or exists mainly to dodge taxes can be dismantled by tax officials. Jane Street’s use of Indian entities—reportedly to bypass FPI restrictions on intra-day trading—and its alleged coordination of “mirror trades” between its onshore and offshore arms could meet this threshold. If GAAR is invoked, profits could be reattributed to the Indian entities, which are taxed at rates up to 40%.

Adding to the heat is the fact that SEBI’s order already alleges that Jane Street’s trades were manipulative and centrally controlled across jurisdictions. If substantiated, this coordination could lead to the Indian subsidiaries being deemed “dependent agents,” making offshore profits taxable in India.

Experts quoted in the report, agree that the use of treaty-protected entities to house profits while Indian arms executed trades is enough to trigger deeper scrutiny. Even if the Singapore FPI isn’t a shell, the structure’s tax benefits and trade patterns may not pass the tax department’s commercial purpose test.