Tax Authorities Probe Jane Street’s Trading Practices Amid GAAR Concerns

Tax authorities in India are examining the global proprietary trading firm Jane Street’s operations to check if there are any income tax issues and whether provisions under the General Anti Avoidance Rules (GAAR) apply to its profits.

Sebi Bars Jane Street, Orders ₹4,843 Crore Impoundment

On July 3, the Securities and Exchange Board of India (Sebi) barred Jane Street from trading in Indian markets. Sebi also stated that “unlawful gains” of ₹4,843.57 crore made by the firm should be impounded.

Profit Booking in Singapore Raises Flags

One key issue is that Jane Street booked most of its profits in Singapore. Singapore benefits from the India-Singapore Double Taxation Avoidance Agreement (DTAA), under which derivative gains are not taxable in Singapore. This raised questions about whether profits that actually come from Indian markets are being shifted offshore to avoid Indian taxes.

What is GAAR and Why Does It Matter?

GAAR allows Indian tax authorities to deny tax benefits if a setup lacks “commercial substance” or is mainly created to avoid taxes. If GAAR is applied, profits earned by foreign entities can be reassigned to Indian entities and taxed at rates up to 38.22%. Experts say Jane Street’s structure and trading methods appear to raise red flags under this rule.

Jane Street’s Complex Group Structure

Jane Street’s group included four main entities: two Indian companies (JSI Investments and JSI2 Investments) and two foreign portfolio investors (FPIs) based in Singapore and Hong Kong. The Indian companies conducted intraday trades on Indian stock exchanges, while the FPIs booked major profits through index option trades offshore.

Tax Authorities Likely to Act

According to tax consultants, Indian tax authorities are expected to tax profits earned by Jane Street from the Indian stock market after reviewing their transactions. The practice of routing trades through Indian entities but booking large profits abroad, especially in Singapore, could be seen as an attempt to exploit tax loopholes.

Read more: 5 Highest Dividend-Paying Companies from the Nifty 500 in FY25.

Conclusion

Jane Street’s trading practices are under close scrutiny by Indian tax authorities due to concerns about tax avoidance through profit shifting. The case highlights how GAAR is used to tackle complex tax avoidance strategies and ensure fair taxation on profits generated in India.

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