KOLKATA: India may ask overseas investors to pay tax on their income from participatory notes (P-Notes) in the next budget, Parthasarathi Shome, advisor to Union finance minister, has told ET.

Shome, a veteran in taxation, said the finance department has agreed on this and the new government may include this in the budget proposal. P-Notes are issued by registered foreign institutional investors (FII) to investors abroad and hedge funds, who invest in local stocks without registering themselves with the Securities and Exchange Board of India.

Even registered FIIs use the PN route to avoid uncertainty over income tax. “So far, PNs issued by FIIs to overseas investors were not taxed by the income tax department. But after deliberations in the finance department, the PN holders may be taxed in the next budget,” Shome said at an event organised by the Institute of Cost Accountants of India.

Typically, PN holders are being taxed by countries where investments are routed through FIIs. Shome also said the revised 2013 version of the Direct Taxes Code has retained the erstwhile practice of granting EEE (exempt, exempt, exempt) to savings at the time of investments, accruals and withdrawal, since there was stiff opposition to the EET (exempt, exempt, tax) as proposed in the original DTC of 2009.

In case of wealth tax, the revised DTC proposed that the dividend distribution tax for incremental dividend in excess of Rs 1 crore would be taxed in the hands of the shareholders. It has also proposed to retain corporate tax at 25 per cent.

Shome said the 35 per cent tax slab for super-rich individuals and Hindu Undivided Families with annual income of Rs 10 crore and above would bring in equity in taxing. He has cited examples of the UK, Germany, Chile and South Africa where such tax slabs are much higher.