INDIA BUSINESS WORLD - JUNE - JULY - 2007
The Month that was ...

DEBENTURES, PROMISSORY NOTES SET TO ATTRACT LOWER STAMP DUTY

STAMP duty on debentures and promissory notes is expected to be reduced soon. The government is likely to notify reduction in stamp duties on the financial instruments in two weeks. Although stamp duty on the instruments is levied and collected by the states, the Centre can raise or reduce the levy, according to a provision in the Stamp Duty Act.

"Financial instruments throughout the country should attract a uniform levy. As consensus has been reached with states on the issue, the government can issue the notification," a finance ministry official said.

At present, the stamp duty is levied at an average rate of 0.375% ad valorem (as a percentage of the value of issue) on debentures while promissory notes attract a duty of 0.05%. The rates vary across states.

As per the proposal, the levy is expected to be at a minimum rate of 0.05% that will go up depending on the tenor. There will be a cap of 0.25% or Rs 25 lakh, whichever is lower. Put simply, a bond with a maturity period of one year should attract a rate of 0.05% of the face value, with a cap of Rs 10 lakh, while a bond exceeding a maturity period of one year should attract a rate of 0.05% of the face value per year, with differing caps depending on the period of maturity with the maximum fixed at Rs 25 lakh.

The duty rates for promissory notes are to be reduced by a fifth. The present rates are 10 paise for amount less than Rs 250, 15 paise for amount more than Rs 250 but less than Rs 1,000, and 25 paise for amount more than Rs 1,000.

The move is expected to bring down the cost of raising debt funds in states that levy stamp duty at a higher rate. For example, stamp duty on security receipts in Delhi is 10 times that of Maharashtra. Besides, it would end the rate arbitrage that a differential duty structure offered, making some states preferred over others to register deeds or issuing debt paper. The RH Patil committee on bond market initiatives had recommended rationalisation of stamp duties.