Income Tax Dept Challenges Jane Street's Singapore Treaty Benefits in ₹8,000 Cr Case

The Income Tax department has challenged the tax benefits claimed by the Singapore arm of American trading giant Jane Street, sending it a draft assessment order in late March. This comes as the latest development in a series of regulatory troubles for the firm in India.

The department has suspected the company of concealing income of around ₹8,000 crore for the financial year 2023-24, according to a report by the Economic Times.

What Is the Tax Department's Argument

The dispute boils down to whether Jane Street set up its Singapore entity genuinely, or primarily to avoid paying taxes in India.

Under the India-Singapore tax treaty, foreign portfolio investors (FPIs) based in Singapore do not have to pay tax on profits made from trading equity derivatives such as futures and options. Jane Street's Singapore arm is registered as an FPI with market regulator Sebi, and has been booking most of its Indian trading profits there, paying no tax on them.

Notably, Jane Street also has an entity in Hong Kong, which is also registered as an FPI in India. However, the India-Hong Kong treaty is less favourable. Hong Kong-based FPIs are required to pay tax on derivative profits. So, the Singapore entity enjoyed a significant tax advantage that the Hong Kong entity did not.

To challenge this, the I-T department has invoked a provision called the 'Principal Purposes Test' (PPT), part of the Multilateral Instrument (MLI), an international framework designed to prevent companies from exploiting tax treaties. This provision allows Indian tax authorities to deny treaty benefits if they believe that obtaining the tax benefit was one of the main reasons behind setting up a particular arrangement or entity.

The department had earlier considered invoking General Anti-Avoidance Rules (GAAR), another tool used to counter aggressive tax planning, but the assessing officer opted for the broader MLI provision instead. The key difference is that GAAR applies when the primary purpose of an arrangement is to avoid tax, while MLI can be invoked even if tax avoidance was just one of several purposes.

The Alleged Structure

Now, according to the Economic Times report, Sebi had alleged that Jane Street used its Indian trading firms to take positions in cash and stock futures markets, while its Singapore and Hong Kong FPIs simultaneously took large positions in equity options. Most of the profits were booked in the Singapore entity, which paid no tax.

Jane's Indian entities allegedly took intraday positions to influence prices, while the FPIs, positioned on the other side of these trades, raked in profits. In effect, the Indian arms were allegedly used to move markets in favour of the overseas entities.

Tax authorities may also argue that while the options trades were technically booked by the Singapore entity, they may have actually been directed from Hong Kong. If so, the department could contend that Singapore was largely used as a tax-friendly front, even if it has a proper office and full-time staff there, since the key decision-makers may not actually be based in Singapore, the report added.

This is not Jane Street's first brush with Indian regulators. In 2024, Sebi launched a major investigation into the firm's trading practices in Indian markets, one of the largest such probes involving a foreign entity.

Sebi alleged that Jane Street had manipulated Indian equity markets, specifically index options on expiry days, to generate unlawful profits. The regulator accused the firm of using its Indian entities to artificially move stock prices in the morning, only for its overseas FPIs to profit from large options positions taken in the opposite direction.

In August 2024, Sebi barred Jane Street from Indian markets and ordered the impounding of alleged unlawful gains of over ₹4,843 crore.