US-based proprietary trading firm Jane Street is facing mounting regulatory pressure in India, as the Income Tax Department considers launching a formal probe following serious allegations of market manipulation by the Securities and Exchange Board of India (SEBI). The developments come in the wake of SEBI’s interim order, which accused Jane Street and its related entities of engaging in sophisticated trading strategies that allegedly distorted benchmark indices such as the Nifty 50 and Bank Nifty, particularly on expiry days.
SEBI’s investigation, which has already resulted in a trading ban for Jane Street and its affiliated entities, also directed the firm to deposit “unlawful gains” of ₹4,843.57 crore. The regulator’s 105-page interim report details a pattern of trades designed to influence index values, with specific reference to activity on January 17, 2024. According to SEBI, Jane Street’s Indian arm conducted intraday trades in the cash and futures segments, while its offshore entities, primarily based in Singapore and Hong Kong, booked significant profits through index option trades. This structure, regulators believe, may have allowed Jane Street to shift profits offshore and avoid Indian taxes.
Complex Corporate Structure Raises GAAR and Tax Treaty Concerns:
At the heart of the tax authorities’ concerns is Jane Street’s intricate group structure. The firm operates through 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 entities were responsible for intraday trades on Indian stock exchanges, while the FPIs booked the bulk of profits through index options, with most gains reportedly recorded in Singapore.
This arrangement has drawn attention because Singapore benefits from the India-Singapore Double Taxation Avoidance Agreement (DTAA), under which derivative gains are not taxable in Singapore. By booking profits offshore, Jane Street appears to have leveraged international tax treaties to minimize its Indian tax liabilities. Tax experts and officials are now examining whether this setup violates the General Anti-Avoidance Rules (GAAR) and the concept of “permanent establishment” in India.
GAAR provisions empower Indian tax authorities to disregard arrangements lacking “commercial substance” or those created primarily for tax avoidance. If GAAR is invoked, profits earned by foreign entities can be reassigned to their Indian counterparts and taxed at rates as high as 38.22%. This could have a significant financial impact on Jane Street, whose group structure is now under close scrutiny for potentially lacking commercial substance and for routing trades in a manner that may be seen as exploiting tax loopholes.
Alleged Market Manipulation and Trading Strategies:
SEBI’s order and subsequent reports have shed light on the trading strategies allegedly employed by Jane Street between January 2023 and March 2025. One key strategy identified involved aggressive buying of Bank Nifty constituent stocks and futures in the morning sessions to artificially inflate index prices. Simultaneously, the firm would build large short positions in index options. Later in the day, Jane Street would offload the acquired stocks, causing the index to decline, and profiting from the options positions.
Another tactic reportedly used by Jane Street was concentrated buying or selling during the final hours of expiry days, which could swing index levels and maximize gains. SEBI’s findings indicate that the Indian entities often placed trades that were in direct contrast to those of the foreign entities, raising further questions about the coordination and intent behind these moves.
The regulator’s investigation has also highlighted concerns about the effective control of Jane Street’s Indian units. Corporate filings show that the majority of directors in these entities are foreign employees, and the local operations are effectively managed from overseas. This offshore control in sensitive market activity has added another layer of complexity to the ongoing probes.
Jane Street’s Response and the Path Forward:
Jane Street has strongly denied SEBI’s allegations. In an internal communication to staff, the firm rejected the “premise and the substance” of SEBI’s interim order, calling it replete with “erroneous or unsupported assertions.” Jane Street maintains that its trading activities in India were fully compliant with applicable laws and regulations, and it has not issued a public response to queries regarding the potential Income Tax probe.
Despite these denials, the regulatory spotlight remains firmly on Jane Street. The Income Tax Department, while yet to issue a formal notice, is reportedly in informal discussions with SEBI and has begun evaluating the firm’s transactions for possible violations of Indian tax laws. The focus will be on whether Jane Street’s structure and trading practices were designed to avoid taxes and whether profits should be attributed to its Indian entities under GAAR.
The case has broader implications for global trading firms operating in India. It highlights the increasing vigilance of Indian regulators in tackling complex tax avoidance strategies and ensuring that profits generated from Indian markets are taxed appropriately. The outcome of the probe could set a precedent for the application of GAAR and permanent establishment rules in the context of cross-border trading and profit shifting.
There could be serious financial and reputational consequences for Jane Street. Since India wants to exert more control over foreign companies that participate in its capital markets, the financial sector and international authorities will probably be closely monitoring the company’s capacity to handle this regulatory obstacle.
