The Income Tax Department’s notice to Jane Street, questioning Singapore treaty benefits on approximately Rs 20,000 crore of F&O gains, is a significant development for cross-border capital markets structuring. The core issue is straightforward: a post-FY20 migration from Hong Kong to Singapore, traders allegedly still operating from Hong Kong, and the Singapore entity’s commercial substance now under scrutiny. If the treaty benefits are denied, the additional tax exposure could run up to Rs 7,000 crore, on top of the existing Rs 4,843 crore SEBI impounding order for alleged market manipulation.
My thoughts on the treaty dimension are quoted in the MoneyControl article below. The short version: substance requirements for treaty access are no longer a theoretical risk for offshore structures routing into Indian markets. They are an active enforcement priority.
“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. The Hong Kong treaty, by contrast, preserves India’s right to tax such gains under domestic law,” said Binoy Parikh, partner, Katalyst Advisors.
“If the revenue establishes that the Singapore entity lacked genuine substance and that trading decisions were in fact directed from Hong Kong, the treaty benefit unravels entirely, and GAAR becomes the natural instrument to formalise that denial. This has implications well beyond one firm. A large number of global funds use Hong Kong as their Asian trading hub while booking India-facing transactions through Singapore-registered FPIs. If this position is sustained, every such structure will need to be re-examined for substance over form”, Parikh added.