The Income Tax Department is intensifying its investigation into US-based investor Jane Street's Indian operations, seeking clarity on the firm's control and potential tax avoidance. This probe follows a Securities and Exchange Board of India (SEBI) order to recover significant illegal gains from the firm for alleged index manipulation.

The tax authorities are scrutinizing the level of control exerted over Jane Street's trading activities in India and the origins of instructions. The department suspects that Jane Street may be using its entities in India, Singapore, and Hong Kong to avoid paying taxes. To this end, the Income Tax Department has reportedly summoned EY, Jane Street's auditor in India, to provide details about the company's Indian operations.

Adding to the complexity, sources indicate that Jane Street is not fully cooperating with the Income Tax Department, posing hurdles to the investigation. Reportedly, access to the company's servers is being blocked, and financial records are maintained overseas, complicating the investigation. It has also been reported that the US-based proprietary trading firm maintains minimal personnel in India, and these staff members are not assisting the authorities.

This tax investigation is one of several challenges Jane Street faces in India. SEBI has already issued an interim order regarding alleged index manipulation by the Jane Street Group, seeking to recover ₹4,843.57 crore in illegal gains. The order specifically names JSI Investments Pvt Ltd, JSI2 Investments Pvt Ltd, Jane Street Singapore Pte Ltd, and Jane Street Asia Trading Ltd. SEBI's investigation revealed that the Group allegedly implemented a profit maximization scheme to influence the market, securing substantial profits in index options while incurring minor losses in the cash and futures segments. SEBI has stipulated that the entities must cease all fraudulent, manipulative, or unfair trading practices.

Furthermore, regulators are widening their investigation into Jane Street and other foreign high-frequency traders (HFTs), examining whether they gained an unfair advantage through privileged access to proprietary trading data. This investigation raises concerns that while HFT firms extract immense wealth from India's markets, they may not be contributing their fair share of taxes locally.

Jane Street entered the Indian market in 2020 and primarily operates from overseas with a minimal local presence. SEBI's findings indicate that Jane Street earned $4.3 billion from January 2023 to March 2025. The firm is accused of employing strategies like "banging the close," which involves placing a large number of orders at the end of the trading day to manipulate prices and increase profits in options markets.

Jane Street has denied all allegations, asserting that they are "erroneous". Legal experts point out that proving market manipulation requires demonstrating that a firm intentionally distorted market prices, as earning profits from market inefficiencies is generally legal.

The outcome of these investigations could have significant implications for Jane Street and other foreign trading firms operating in India. The investigations also highlight the challenges regulators face in overseeing sophisticated trading strategies and ensuring fair market practices.