Jane Street Faces Fresh Woes As I-T Department's Tax Evasion Probe Says Report

Jane Street is in the news again amid reports suggesting that the US-based proprietary firm is being investigated by the Income Tax Department. The Income Tax Department launched a probe on July 31 at the premises of some broking companies related to Jane Street to investigate allegations of tax evasion against the firm.

According to news agency ANI the employees of the proprietary trading firm are not cooperating with Income Tax department officials. The report also cited sources which said that the company's servers are located outside India. Notably the I-T Dept surveyed Nuvama Wealth's headquarters located in Mumbai as a part of its investigation. The brokerage firm's office also served as Jane Street's clearing and trading partner. The report stated that Nuvama is likely to be held liable for withholding tax and could face recovery proceedings.

The trading firm's books of accounts are maintained outside India. This has been done despite Indian company law requiring the books to be kept within the country. The hurdles in accessing the books have also created issues in continuing the probe. Additionally the US-based proprietary trading firm has skeletal staff presence in India.

Why Is I-T Department Probing Jane Street

The probe is being conducted to investigate allegations of 'treaty hopping' according to a report by NDTV Profit which cited sources privy to the investigation. The proprietary trading firm committed treaty hopping by channelling its derivative trades through its Mauritius-based entity. This, in turn, helped the company to claim capital gains tax exemption as Mauritius does not have a capital gains policy.

Thus the treaty hopping was operationalised by the trading firm by showing losses on equity investments in Indian companies and simultaneously booking profits in futures and options trades via Mauritius according to the report. Thus the allegations suggest that the treaty benefit between India and Mauritius was wrongly claimed and Jane Street's gains are taxable in India.

Sebi Probe Against Jane Street

Earlier on July 3, the Sebi passed an interim order against Jane Street. The market watchdog found in its investigation that the trading firm had manipulated indices by using several strategies such as placing bets in the cash segment simultaneously along with futures and options markets to create massive profits. The market regulator impounded more than Rs 4,843 crore in unlawful gains from Jane Street. After initially barring the trading firm from the Indian securities market, the Sebi allowed Jane Street to resume trading after the company deposited its unlawful gains.