India's central government says it will halve government stamp duties on letters of credit (L/Cs) as part of its budget plans to reduce transaction costs.

The move has been generally welcomed but at least one expert reckons the impact of the reductions in stamp duty will be limited unless the authorities governing India's state follow the central government's suit by reducing duties levied at state level.

Duty halved

Finance minister Jaswant Singh has said he will halve government stamp duties during an interim budget speech in February. The minister also said the threshold limit for stamp duty payment will be raised from the existing Rs 500 (US$11) to Rs 50,000 (US$1,116).

The change will not be immediate. An amendment in the Indian Stamp Act will be required before the proposal can be implemented.

State duties

As well as L/Cs, the proposal will apply to other transactions subject to central government duties via the Indian Stamp Act. These include bills of exchange, cheques, promissory notes, bills of lading and insurance policies.

Central government stamp duty does not however apply to transactions involving property, bonds and mortgages as well as several other deal types that are subject to levies imposed at state level.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.