Duty on central government stamp paper halved

INTERIM BUDGET & THE ECONOMY/STAMP DUTY

The government brought in stamp duty reforms by cutting the duty on central government stamp papers by half.

Finance minister Jaswant Singh also proposed in his interim budget speech that the threshold limit for stamp duty payment be raised from the existing Rs 500 to Rs 50,000.

However, this would call for an amendment in the Indian Stamp Act. As a result, this proposal will get implemented only when the Act is changed.

"The existing stamp duty structure is being halved, that is, being reduced by 50 per cent on all Central Government stamp papers. As for duty on Receipts, here too, the threshold for payment of stamp duty is to be increased from Rs 500 to Rs 50,000. As, however, this last reform requires an amendment to the Act, it can not be taken up at this stage," the finance minister said in his speech today.

Welcoming the announcement, PricewaterhouseCoopers CEO and chairman Rathin Datta said: "Announcement of the stamp duty reform is a welcome step which will go a long way in reducing transaction cost."

Added Confederation of Indian Industry (CII) president Anand Mahindra: "The reduction of stamp duty by nearly 50 per cent is in line with the government's efforts to take reforms a step further. Increasing the threshold from Rs 500 to Rs 50,000 will benefit all segments of society."

However, industry circles said that the impact would not be very significant as the bulk of transactions are carried out on state stamp papers, while today's announcement relates only to central stamp paper duty.

The Indian Stamp Act allows the Centre to stamp bills of exchange, cheques, promissory notes, bills of lading, letter of credit and insurance policies. All other big ticket items like conveyance, property, agreements, bonds, lease, mortgage are on the state list.

Thus, most corporate deals including sale and purchase of property and other assets attract a stamp duty payable to the states. As it happens, each state has a different schedule of stamp duty.

As a result, transaction costs differ from state to state. "There will not be a huge impact unless the states also follow the example of the Centre," Ernst & Young partner Sachin Menon said.

However, the finance minister indicated in his speech that a dialogue was on with the states to bring about a homogeneity in stamp paper duties across the country.

"A comprehensive reform of the entire stamp duty regime is being addressed in consultation with state governments, as high stamp duty increases transaction costs, restricting economic activity. The government has, in the meantime, decided to reduce stamp duty on all such instruments where the authority to fix rates is the central government," Jaswant Singh said calling today's step the first step in this direction.

Of course, it remains to be seen if the states, for whom stamp duty is a vital source of revenue, will agree to such cuts.