On Jane Street India's Trade Trail: I-T Dept Summons EY Auditors

The Income Tax Department of India is reportedly trying to determine who called the shots at the Indian entity of US firm Jane Street. For this, it has summoned its auditor Ernst and Young (EY).

According to the Economic Times (ET), the taxman wants to question the Big Four auditor about its engagements with the company. Sources told the newspaper the aim is to determine whether decisions were being taken in India or by its entities in Singapore and Hong Kong.

The investigation into the company’s possible tax violations follows a reported push by Sebi. In July, the market regulator came out with an interim report on the trading firm, alleging it was manipulating the Indian futures and options market.

One of the allegations against the US firm was that while Jane Street’s Indian arm used to take cash and stock futures positions, its Singapore and Hong Kong units—Sebi-registered foreign portfolio investors (FPIs)—took bets on equity options.

“JSI Investments Private Limited, the JS Group entity incorporated in India, executed intra-day trades in the cash segment during the examination period. The two FPIs forming part of the JS Group took large positions in the futures and options segment. The intraday cash market transactions undertaken by the Indian entity consistently ended with large losses. It appears that the incorporation of the aforesaid company in India enabled the JS Group to get around the regulatory prohibition against cash market transactions which solely applied to FPIs, and thereby execute the manipulative scheme without specifically flouting the FPI Regulations,” wrote Sebi’s Whole Time Member Ananth Narayan G. in his report dated July 3.

What the I-T Dept Wants to Know

If tax officials can establish that Jane’s proprietary trading arm in India was merely a shadow of the foreign entity—executing the parent group’s instructions rather than operating independently—they can disallow its losses, as per the report. In such a case, Jane India would not be permitted to carry forward losses and would be liable to pay tax on future profits.

Sources told the newspaper that for the tax office, however, this would be only a smaller win. To claim tax on Jane’s profits, it must build this argument into a broader case—one that questions the treaty benefits availed by Jane’s entities in Singapore and Hong Kong.

To strengthen the case, authorities must show that the various Jane entities in India, Singapore, and Hong Kong acted in collusion to avoid taxes, thereby constituting an ‘impermissible avoidance arrangement’, a structure designed primarily to gain tax advantages. Treaty benefits are allowed only for bona fide transactions.

Earlier, officials had conducted a six-day survey of Jane Street’s India offices. According to reports, however, investigators struggled to secure sufficient information because most data was locked in offshore servers.