Budget may cut withholding tax on debt instruments: Sources

In the upcoming Budget the Finance Minister P Chidambaram may rationalize the withholding tax on debt instruments, sources told CNBC TV18.

Also read: What to expect from the Union Budget 2013-14
In the 2012-Budget, the withholding tax was cut from 20 percent to 5 percent on foreign borrowing. FM is likely to replicate this in upcoming Budget across other debt instruments, which include non-resident Indian (NRI) investments and rupee denominated debt.
The government is also seriously considering rationalising securities transaction tax. Sources said that this will depend on short term capital gains which might also be capped by the government.
The government is also contemplating whether foreign institutional investors (FIIs) income should be treated as business income or capital gains, sources said. If it is treated as business income, the tax rate is much higher compared to the capital gains tax. The government is also contemplating on whether income of FII having permanent establishment in India should be treated as business income. Also read: Recommendations on retro-tax laws under examination: Govt