Tax expenditure refers to government policies that forego revenue through preferential tax treatment or subsidies in order to achieve certain social or economic objectives. Unlike direct spending, tax expenditures are implemented through the tax code, granting benefits to specific groups or activities by reducing their tax liabilities.
In the housing sector, tax expenditures play a significant role in shaping government budgetary policies. For instance, mortgage interest deductions and property tax deductions are common tax expenditures aimed at incentivizing homeownership and stimulating the housing market. These tax breaks effectively reduce the cost of housing for homeowners, thereby influencing consumer behavior and investment decisions within the housing sector. Additionally, government subsidies for affordable housing projects can be considered tax expenditures, as they represent forgone tax revenue in support of housing initiatives. The magnitude and allocation of tax expenditures in the housing sector reflect governmental priorities, impacting budgetary decisions and fiscal policy objectives related to housing affordability, economic growth, and social welfare.
Tag: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.
Decoding the Question:
In intro try to define tax expenditure
In Body,
- In first part discuss various tax expenditure or tax exemptions given in budgets
- In the second part, discuss how tax expenditure influences budgetary policies.
- Try to Conclude, answer with contextual conclusive remarks.
Answer:
Tax expenditure is not related with governments expenditure or expenditure incurred by the government while collecting taxes. But it includes opportunity tax at concessional rates or as opportunity cost of giving exemptions, rebates, deductions, credits, and any other concessions given on actual rate of taxes. The tax expenditure measures how much collection of taxes would have taken if concessions are not given. In 2006-07, for the first time the Government laid before Parliament a detailed report on tax forgone or tax expenditure.
Tax expenditures affect: the budget balance, budget prioritization in allocation, the effectiveness and efficiency of fiscal resources, and the scope for abuse by taxpayers, government officials and legislators
Impact of Tax Expenditure on Budgetary Policies in Housing Sector:
- Exemption on Principal Amount: Exemption allowed on principal repayments and exemptions given on interest rates on housing loans.
- Extensions on Tax Incentives by a Year upto the End of Fiscal 2021-22. This includes tax deduction upto Rs 1.5 lakh on interest on housing loan, and tax holiday for affordable housing projects.
- Housing For All: In order to spur investment in the housing sector, the government is considering providing tax incentives for certain projects to ensure ‘Housing for All by 2022.
- New Rent House Policy: The draft National Urban Rental Housing Policy has suggested a host of fiscal incentives to encourage rental housing with a view to achieve the goal of housing for all by 2022.
- Economic Survey: As per Economic Survey 2019-20 Central government has slashed interest rates on house buildings advance for government employees. The interest rates have reduced to 7.9% from 8.3% and would now be linked with 10-year G-sec yields.
- Relaxation of ECB’s: The external commercial borrowings guidelines will be relaxed to provide easy financing for home buyers who are eligible under Pradhan Mantri Awas Yojana.
Due to reduced tax exemption from the government, a number of people owned their own houses. The tax expenditure budget comprises estimated revenue losses attributable to various exemptions, deductions, non-refundable credits etc. These provisions reduce liabilities of certain types of businesses, individuals etc.
In case you still have your doubts, contact us on 9811333901.
For UPSC Prelims Resources, Click here
For Daily Updates and Study Material:
Join our Telegram Channel – Edukemy for IAS
- 1. Learn through Videos – here
- 2. Be Exam Ready by Practicing Daily MCQs – here
- 3. Daily Newsletter – Get all your Current Affairs Covered – here
- 4. Mains Answer Writing Practice – here
