K R Sriram & Co
Chartered Accountants

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Budget 2004 - Highlights


Budget - An exercise made by the central government to forecast its income and expenditure for the coming year. As the incomes are directly linked to the taxes collected by the Central Government, it has powers to make changes in the various Direct and Indirect Taxes like Income Tax Act, Customs Act, Central Excise Act etc., This power is generally exercised by announcing the Finance Bill (which is part of the Budget Document) every year. This Bill needs the approval of the parliament before it becomes mandatory. Certain specifically stated provisions of this Finance Bill are introduced with immediate effect.

Generally the Finance Bill is placed before the parliament in the month of February and is passed by March to ensure that at the beginning of the year, the tax rules are clear for every person in respect of the ensuring year. However for the year 2004-05 due to general elections in May 2004, the budget was presented in July 2004. The effective implementation dates of these changes coming into force varies.

This Budget has announced a lot of measures to the farm and the agricultural sector by way of announcement of various schemes etc. We believe that to most of us, these announcements should not have any direct effect on our personal finances. Our focus in this bulletin is restricted to the areas of direct impact.

Education Cess (Levy of education cess at 2%)

A cess of 2 % has been imposed on the following taxes and duties:-

This is applicable with immediate effect. For Income Tax the cess is applicable on taxes payable for the year.

Securities Transactions (Changes in taxability of transactions in securities)

The above changes are to be made effective from the date notified by the government in this regard. (No such date notified till date)

Income Tax - Personal

Income Tax - Business/Profession

In addition to the above changes to the extent they are applicable , there have been certain changes which are applicable specifically to Business/ Profession. They are listed below :

Income Tax - Non-Residents

With effect from 1st September 2004 Interest earned on NRE Accounts will be taxable.

Service Tax

The rate of service tax increased from 8% to 10% with effect from the enactment of the Finance Bill 2004.

The following additional services are covered under the Service Tax Net :-

Scope of Services increased in the following cases :-

The credit for service tax is being extended across goods and services.


There have been changes in the excise tariff and customs duty in respect of certain goods and certain changes regarding the administrative mechanisms in all the areas of taxation. In order to restrict our focus only to significant changes in Income Tax and Service Tax we have not included those changes in the above highlights. However we will be glad to provide the details of any changes whether covered hereinabove or otherwise if you may so require.

We also intend to bring out a detailed analysis of the changes in our quarterly bulletin due by September, by which time we expect that the proposed changes would have been approved by the parliament either in its entirety or otherwise.

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