Highlights Of Union Budget for Electronics and IT Sector 2004-05

The Union Budget for 2004-05 was presented in the Lok Sabha today i.e. 8^th July, 2004 by the Hon’ble Finance Minister, P Chidambaram. The FM said that the Budget would aim seven to eight per cent growth.

• An Investment Commission to be established.
• A National Manufacturing Competitiveness Council to be set-up.
• Sectoral cap for FDI to be raised from 49 percent to 74 percent in telecommunications.
• Small Scale Industry: 85 items to be taken out of the reserved list; ceiling for loans under the capital subsidy scheme to be raised from Rs. 40 lakh to Rs. 1 crore; rate of subsidy to be raised from 12 percent to 15 percent; more sub-sectors and technologies to be made eligible for assistance.
• VAT : a broad consensus among the States to implement VAT with effect from April 1, 2005;
• Export Promotion : Bill for regulating Special Economic Zones to be introduced.

Direct Taxes

• Tax exemptions on interest earned from a Non-Resident (External) Account and interest paid by banks to a Non-Resident or to a Not-Ordinarily Resident on deposits in foreign currency, and on payment made by an Indian company to acquire an aircraft or an aircraft engine on lease from a foreign state or a foreign enterprise, to cease from September 1, 2004.
• Additional depreciation of 15 percent allowed on new plant and machinery acquired or installed in an existing undertaking to continue with the required increase in installed capacity at 10 percent instead of 25 percent.
• Benefits to the telecom sector under Section 80 IA for services commenced before March 31, 2004 – terminal date to be extended to March 31, 2005.
• 100 percent deduction of profits for 10 years to companies carrying on scientific research and development and approved by the Department of Scientific and Industrial Research before April 1, 2004 – terminal date to be extend to March 31, 2005.

Union Budget for Electronics and IT SectorIndirect Taxes

• Intention to align the tariff structure to those of ASEAN countries.
• Eventually there should be a uniform rate of tax on goods and services.
• Removal of exemption from CVD enjoyed by some imported goods where there is no corresponding exemption from excise duty on Indian made goods.
• Specified raw-materials for manufacture of parts of cathode ray tubes and specified capital goods for manufacture of mobile handsets, plasma display panels, etc. to be exempt from excise duty.
• Specified items for manufacture of telecom grade optical fibres and cables to be exempt from customs duty; customs duty exemption to be extended to imports by universal access services providers.
• Full excise duty exemption to be granted on computers.
• Excise duty on the following items has been increased from 8% to 16%

1. Clock and watches of RSP not exceeding Rs. 500 per piece.
2. Monochrome television receivers.
3. Populated printed circuit boards for monochrome television receivers.

• Excise duty of 16% has been imposed on Parts of clocks and watches of RSP not exceeding Rs. 500 per piece.

General SSI exemption would be available to all these items.

Service Tax:

• An education cess of 2 percent on income tax, corporation tax, excise duties, customs duties and service tax to be levied.
• Credit of service tax and excise duty to be extended across goods and services; rate of service tax to be enhanced from 8 percent to 10 percent; addition of some more services; mandatory verification of self-assessment and the mandatory penalty for non-registration to be done away with. The following services has been added in the list of services which attract Service Tax

1. Business Exhibition Services
2. Airport Services
3. Transport of goods by road (by a goods transport agency)
4. Transport of goods by air
5. Survey and exploration of minerals
6. Opinion poll services
7. Intellectual property services other than copyrights
8. Forward contract service
9. Pandal or Shamiana service
10. Outdoor catering
11. TV or Radio programme production
12. Construction services in respect of commercial or industrial buildings or civil structures
13. Trave agents (other than air/rail travel agents)

• Service Tax is being restricted to the Risk cover in life insurance service.
• Scope of certain existing services is being extended as follows

1. Commission and installation of plant, machinery or equipment to include ‘erection’ thereof
2. Stock brokers to include ‘sub-brokers’
3. Cable operator service to include ‘Multi System Operators (MSO)’
4. Business auxiliary service also to include service relating to procurement of inputs, production of goods or provision of services on behalf of client. However, activities amounting to manufacture are specifically excluded from the scope of the service tax.
5. Financial services also to include other specified financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit, bill of exchange, providing a bank guarantee, overdraft facility, bill discounting, safe deposit, lockers, or safe vaults and operation of bank accounts. The interest amount would, however, remain excluded from the purview of Service Tax. In addition to banking company, financial institutions including a non-banking financing company, body corporates, any other commercial concern providing financing services will also be covered.
6. Tour operator services will include such package tour operators also who organise tours involving any mode of transport.

• Following Service Tax exemption are being removed

1. Exemption to services in relation to safe deposit lockers and vaults.
2. Maintenance or repairs of computers under a maintenance contract or by the manufacturer.
3. Mandap keeper services provided by hotels, However,  40% abatement will be allowed if catering is also provided.
4. Commission agents, other than those dealing in agricultural produce, under business auxiliary service.
5. Broadcasting service provided by cable operators
6. Reduction of abatement from 90% to 60% for non-package tours.