Five High-Frequency Trading Firms Receive Tax Authorities' Inquiries Following Jane Street Controversy

Tax Department Queries Five High Frequency Traders

Key Figures:

• 5: Number of high frequency traders (HFTs) receiving queries from the tax department.
• 3: Number of US-based traders among the queried HFTs.
• FY24 and FY25: Tax filing years under scrutiny.

Background

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The income-tax department has initiated queries against at least five HFTs, including three US-based traders, regarding their tax filings for FY24 and FY25. The primary concern is the use of external structuring via Singapore, which may result in potential tax avoidance.

Jane Street Capital Probe

The tax department's action follows a probe opened against Jane Street Capital in January for alleged tax avoidance on substantial profits generated in the Indian stock market. Jane Street is a global financial services firm with a significant presence in India.

HFTs' Tax Filings Under Scrutiny

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The queried HFTs are active in both the cash and derivative markets. The tax department's queries focus on the structuring of profits and losses, which may be attributed to the foreign parent entity eligible for international tax treaty benefits. This may lead to reduced tax payments and accumulation of losses that can be used to offset future profits.

Sebi's Findings

Two studies conducted by Sebi in derivative markets for FY24 and FY25 showed that over 90% of retail investors made losses in derivative trades. Sebi had issued an interim order against Jane Street on July 3, 2025, accusing it of market manipulation. Jane Street had used a dual structure, and Sebi directed the impounding of Rs 4,843 crore in alleged illegal gains.

Impact on FPIs

The Jane Street saga has brought to light practices that may fail the test of anti-avoidance rules. Singapore and Mauritius are jurisdictions that offer zero taxes for foreign investor profits made in the derivatives market. As a result, most foreign portfolio investors (FPIs) are revaluating their structures to focus on compliance with India's anti-avoidance rules.