IT Department Sends Draft Notice to Jane Street, Seeking Response on Denial of Treaty Benefits for Rs 20,000 Crore Worth of F&O Market Gains

Tax Department Sends Draft Notice to Jane Street Over Alleged Tax Evasion

The Income Tax Department has sent a draft notice to high-frequency trader Jane Street, asking why the department should not deny Singapore treaty benefits for derivative market gains of approximately Rs 20,000 crore over the last four to five years. According to two people with direct knowledge of the matter, the notice was sent on March 31.

This move puts additional pressure on Jane Street, which is already facing a Rs 4,843 crore impounding order from the Securities and Exchange Board of India (Sebi) for alleged market manipulation. In July 2025, the tax department had raided certain market entities, including the global custodian of Jane Street, in connection with an investigation.

If the treaty benefits are denied, Jane Street may face an outgo of around Rs 7,000 crore. The tax department has alleged that Jane Street shifted its base from Hong Kong to Singapore post FY20 to avail tax exemptions available in Singapore. However, the tax department claims that Jane Street's current Singapore office lacks commercial substance, and its traders continue to sit in Hong Kong while the company is claiming tax benefits through the Singapore entity.

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Comparison of Tax Treatment Under India-Singapore and India-Hong Kong DTAA

Tax experts say that there is a significant difference in the tax treatment of entities from Singapore compared to Hong Kong. According to Binoy Parikh, partner at Katalyst Advisors, "The India-Singapore DTAA and the India-Hong Kong DTAA treat derivative gains very differently. Under the Singapore treaty, the residuary capital gains clause grants exclusive taxing rights to the resident state, which effectively produces a zero-tax outcome for derivative profits."

Jane Street's defense is that it shifted to Singapore due to a force majeure situation during the COVID-19 lockdown. According to a person with direct knowledge of the matter, "Jane Street claims it had received repeated requests from its traders that it was becoming difficult to operate from Hong Kong Office and hence wanted the firm to explore an alternative until lockdowns are lifted. This prompted Jane Street to shift its traders to Singapore."

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However, the tax department is taking a view that Jane Street's Singapore entity lacks genuine substance and that trading decisions were directed from Hong Kong. If this interpretation holds true, it could have implications for many other traders who have similar structures.