The Income Tax Department has conducted raids at the premises of Nuvama Wealth and Investment Limited, formerly known as Edelweiss Broking, and Jane Street in Mumbai. These actions are reportedly linked to an ongoing investigation into financial irregularities and potential tax evasion. Nuvama served as Jane Street's on-the-ground trading partner in India.
Background of the Investigation
The raids are connected to the Jane Street matter, where the firm is under scrutiny for allegedly manipulating the Indian stock market. The Securities and Exchange Board of India (SEBI) had earlier barred Jane Street from trading in the Indian markets following allegations of market manipulation. SEBI also directed the impounding of ₹4,843.57 crore (approximately $570 million) in what it termed "unlawful gains".
The probe against Jane Street has widened to include potential violations of tax provisions, specifically those related to the General Anti-Avoidance Rules (GAAR) and permanent establishment norms. These rules allow the Income Tax Department to reattribute profits booked by overseas entities to their Indian counterparts, potentially subjecting them to higher tax rates.
Concerns and Allegations
According to SEBI's findings, Jane Street's Indian entities were involved in intraday trades in the cash segment, while its offshore entities in Singapore and Hong Kong booked substantial profits through index option trades. This arrangement has raised concerns about potential tax evasion, as Singapore benefits from the India-Singapore Double Taxation Avoidance Agreement (DTAA), under which derivative gains are not taxable in Singapore.
The Income Tax Department is examining whether Jane Street's transactions can be taxed in India using the GAAR framework. GAAR allows tax authorities to reverse any setup that lacks commercial substance or primarily exists to evade taxes. If invoked, profits earned by overseas entities could be reattributed to Indian entities and taxed at rates up to 38.22%.
Nuvama's Role and Impact
Nuvama Wealth Management's shares experienced a dip following the news of the IT raids. As Jane Street's domestic trading partner, Nuvama is caught in the regulatory crossfire, although SEBI has not directly named the company in its order. Investors are concerned about the potential impact of the SEBI order on Nuvama's operations.
Jane Street's Defense
Jane Street maintains that SEBI's order reflects a misunderstanding of standard hedging practices. The company claims it was using "basic index arbitrage trading" and has called SEBI's allegations "extremely inflammatory". Jane Street has hired a Mumbai-based law firm to represent it before SEBI and has deposited the disputed funds in an account pending the investigation.
Political Reactions
The issue has also drawn political attention, with the Congress party alleging that Jane Street siphoned off ₹44,000 crore (approximately $5.2 billion) from Indian investors to the U.S.. The party has questioned the government's oversight and the regulatory institutions' role in allowing the alleged scam to continue for so long.
Ongoing Investigation
The Income Tax Department and SEBI are continuing their investigations into Jane Street's activities in the Indian market. The focus is on whether the company engaged in market manipulation and tax evasion. The outcome of these investigations could have significant implications for Jane Street's future operations in India and its tax liabilities.
