The government will slap a 60 per cent import tax on sugar from January 1, a government source said on Friday, reflecting good output prospects from the world's top consumer of the sweetener.

India, the top producer of sugar behind Brazil, had dropped a 60 per cent import tax in early 2009 to overcome an acute domestic supply shortage, triggered by the worst drought in four decades.

"The duty free notification lapses on December 31 and from January 1 it automatically reverts back to the old duty structure," the source told reporters.

Trade and government officials say India is poised to produce 24.5 million tonnes sugar in the new season from October, up from 18.8 million tonnes in the previous year.

"If required, we can seek a change in the import duty later," said the source.

The expectation of higher output has led the government on December 15 to allow unrestricted exports of 500,000 tonnes of sugar.

The source also said an order outlining details of the permitted exports would be finalised by next week.

On Thursday, New York raw sugar futures closed down 10 per cent after posting their biggest intraday percentage decline in more than a decade as investors grabbed for the cash and ran for the exits on 2010.

London March white sugar slumped, dropping $65.10, or 7.9 per cent, at $761.30 per tonne, far below Wednesday's all-time high at $835.80.

India's local sugar futures traded 0.8 per cent lower at Rs 2,980 per 100 kg, as higher cane crush weigh on prices.

Earlier this week, a panel of ministers extended stocks limit on sugar for three more months until March 31 as crushing got delayed due to unseasonal rains.