According to media reports,foreign institutional investors (FIIs) may trim their investment in Indian debt market on fear that government may impose a 20 percent withholding tax on coupon received from their bond holdings.
 
 Such fears surfaced following the introduction of the draft general anti-avoidance rules (GAAR), in the recent Union budget.GAAR gives tax authorities right to bring bond transaction under the “withholding tax” net at their discretion. FIIs have managed to avoid paying this tax thus far. 
 
 FIIs typically avoid paying the tax by selling their bond holdings just before the coupon date and then buying them again. The trading gain is considered a “capital gain” and is not taxable in India, based on tax treaties with countries where the FIIs originate from.
 
 However, if GAAR is implemented, the tax will be on the coupon and authorities can question such transactions and force FIIs to pay the withholding tax, bond dealers said. FIIs argue that this will lead to losses on their bond portfolio.