What is the meaning of the term 'tax expenditure'? Taking housing sector as an example, discuss how it…

Question

What is the meaning of the term 'tax expenditure'? Taking housing sector as an example, discuss how it influences the budgetary policies of the government.

Ghissu Editorial · Accepted Answer

Tax expenditure is revenue forgone through exemptions, deductions and concessional rates, and in housing it shapes the budget by widening the fiscal gap while favouring taxpayers who borrow. Home-loan deductions under Sections 24(b), 80C and 80EE are the main instances.

**Introduction**

Tax expenditure is the revenue forgone through preferential tax provisions such as exemptions, deductions and concessional rates. The Union Budget has reported it since 2006-07 in a Statement of Revenue Foregone, as it works like spending through the tax code.

**Tax Expenditure in the Housing Sector**

1. **Interest deduction**: Section 24(b) lets interest on a loan for a self-occupied house be deducted from income, up to Rs 1.5 lakh when the question was set.
2. **Principal and first homes**: Principal repayment qualifies under Section 80C, and Budget 2013-14 added Section 80EE, an extra Rs 1 lakh for a first home loan up to Rs 25 lakh.
3. **Developers**: Section 80-IB(10) gave housing projects a profit deduction, later revived for affordable housing as Section 80-IBA.

**Influence on Budgetary Policies**

SKETCH: flow | Housing Tax Expenditure and the Budget
- Housing concession
- Revenue forgone
- Wider fiscal gap
- Less room to spend
- Rationalise or redirect

1. **Hidden spending**: Revenue forgone escapes the line-by-line vote that grants face, so concessions persist and quietly widen the deficit.
2. **Choice of instrument**: Government can support housing through the tax code or through outlays, as the PMAY-Urban interest subsidy (2015) later did for buyers outside the tax net.
3. **Equity concern**: Only income-tax payers who can borrow benefit, so the support is regressive.
4. **Growth lever**: Concessions are raised to revive demand in a sector tied to construction jobs, cement and steel, making housing a tool of countercyclical policy.

**Conclusion**

Tax expenditure on housing is a powerful but hidden budget lever. Pruning exemptions, as the Kelkar Task Force (2002) urged, and funding housing through targeted outlays make the budget more transparent and fair.

What is the meaning of the term 'tax expenditure'? Taking housing sector as an example, discuss how it influences the budgetary policies of the government.

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