Subject: Economy

The tax expenditure represents revenue foregone by the government through various tax concessions and exemptions to promote specific economic activities and social objectives. In India's housing sector, these fiscal tools significantly influence budgetary policies and economic outcomes.

Understanding Tax Expenditure in Housing Sector

• Tax expenditure in housing manifests through income tax deductions on home loan interest, principal repayment, and rent paid under various sections of the Income Tax Act.
• The government allows taxpayers to claim nil annual value for two self-occupied properties, enhancing the attractiveness of real estate investment.
• Recent policy changes include raising the TDS limit on rental income to ₹6 lakh from ₹2.40 lakh, demonstrating the government's commitment to housing sector growth.

Impact on Budgetary Policies

• Revenue Implications: Tax benefits in housing lead to significant revenue foregone, with the home mortgage interest deduction alone accounting for $29 billion in tax benefits.
• Expenditure Priorities: The substantial revenue loss necessitates careful balancing of public spending, reflected in the ₹82,576.57 crore allocation to the Ministry of Housing and Urban Affairs in Budget 2024-25.
• Social Welfare Programs: The government compensates for tax expenditure through targeted housing schemes like PMAY-U, with an allocation of ₹30,171 crore for 2024-25.

Policy Trade-offs and Considerations

• Fiscal Balance: Tax expenditures create pressure on fiscal deficit targets, requiring optimization of government spending across sectors.
• Economic Stimulus: Housing sector tax benefits stimulate construction activity, generate employment, and create multiplier effects in the economy.
• Social Objectives: Tax incentives help achieve broader goals like affordable housing and urban development through schemes like PMAY, which received a substantial ₹10 lakh crore allocation.

The strategic use of tax expenditure in India's housing sector demonstrates the delicate balance between promoting economic growth and maintaining fiscal prudence. While these measures support the "Housing for All" mission, careful monitoring of their fiscal impact ensures sustainable public finance management through initiatives like the National Infrastructure Pipeline and PM Gati Shakti.