Tax incentives
Also called: Tax concessions · Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Class 11, Ch 2 "Indian Economy 1950-1990"; Class 11, Ch 3 "Liberalisation, Privatisation and Globalisation: An Appraisal"
Meaning
Tax incentives (also called tax concessions) are tax benefits the government gives to push activity in a chosen direction. Examples include lower taxes for industries in backward areas and concessions for foreign investors. Each incentive narrows the tax base, the total income or activity that can be taxed. NCERT (Class 11) notes that such incentives "further reduced the scope for raising tax revenues". Since 2006-07, the Budget has reported the revenue lost to them in the Statement of Revenue Impact of Tax Incentives.
Example
The SEZ income-tax holiday under Sec. 10AA was one such incentive. The new income-tax regime works the other way. It offers lower rates in return for giving up most deductions, which shrinks the revenue lost to incentives and makes filing simpler.
Don't confuse with
- Tax expenditure: tax incentives are the tools themselves. Tax expenditure is the revenue foregone because of them, the cost that appears in the Budget statement.