CBDT Grants 54EC Tax Exemption Status to IREDA Bonds for Green Investments

In a significant policy step toward strengthening India’s green energy financing ecosystem, the Central Board of Direct Taxes (CBDT) under the Ministry of Finance has officially notified that bonds issued by the Indian Renewable Energy Development Agency Ltd. (IREDA) will now qualify as ‘long-term specified assets’ under Section 54EC of the Income Tax Act, 1961. The notification, which came into effect on July 9, 2025, is poised to create a dual impact—providing investors with a compelling tax-saving option while facilitating lower-cost financing for renewable energy projects across India.

What the Notification Means for Investors

As per the latest notification, IREDA bonds redeemable after five years—and issued on or after July 9, 2025—will now qualify for Long-Term Capital Gain (LTCG) tax exemption under Section 54EC of the Income Tax Act. This section provides relief to taxpayers who sell long-term capital assets (such as property or shares) and reinvest their gains into notified bonds.

Under the 54EC provision, investors can claim exemption of up to ₹50 lakh in a financial year by investing the capital gains in these bonds within six months from the date of sale. These bonds must be held for a minimum of five years, during which they are non-transferable, ensuring long-term investment commitment.

Supporting India’s 500 GW Non-Fossil Fuel Target by 2030

Welcoming the development, Shri Pradip Kumar Das, Chairman & Managing Director of IREDA, said:

“We are deeply grateful to the Ministry of Finance, Ministry of New & Renewable Energy, and CBDT for this valuable policy initiative. This recognition by the Government reinforces IREDA’s pivotal role in accelerating renewable energy financing in the country."

He added that the tax-exempt status of IREDA bonds will serve a dual purpose:

1. Offer attractive investment avenues for individuals and institutions seeking safe, tax-efficient instruments.

2. Ensure enhanced capital availability for the fast-growing green energy sector, aligned with India's ambition to achieve 500 GW of non-fossil fuel capacity by 2030.

Proceeds to Be Utilised for Self-Sustaining Renewable Energy Projects

IREDA has clarified that proceeds from these bonds will be channelled exclusively into renewable energy projects that have the capacity to service debt from their project revenues, independent of any State Government guarantees or fiscal support. This underscores a growing trend of market-driven project viability in India’s green infrastructure landscape.

Advantages for IREDA: Lower Cost of Capital

The CBDT notification also delivers strategic benefits to IREDA by reducing its overall cost of borrowing. With the long-term bonds now carrying tax-exempt status, demand from retail and institutional investors is expected to rise sharply, enabling IREDA to raise funds more efficiently.

This reduction in capital costs is expected to enhance IREDA’s ability to finance a broader spectrum of renewable energy projects, including:

• Solar and wind power generation

• Bioenergy and biomass conversion

• Hydro projects and hybrid energy systems

• Energy storage and green hydrogen infrastructure

Wider Impact: Strengthening the Green Finance Ecosystem

This move marks a strategic policy alignment between fiscal tools and climate goals. By extending the 54EC tax benefit to IREDA’s bonds—previously available only for bonds issued by entities like REC (Rural Electrification Corporation), PFC (Power Finance Corporation), and NHAI (National Highways Authority of India)—the government has formally acknowledged renewable energy as a critical infrastructure sector deserving of long-term capital inflow.

The announcement is expected to attract:

• High Net-Worth Individuals (HNIs) seeking secure, tax-efficient investments

• Institutional investors such as banks, insurance companies, and pension funds

• Climate-focused investors aligning portfolios with ESG and sustainable finance principles

Background: IREDA's Legacy in Renewable Energy Financing

Established in 1987, IREDA operates under the administrative control of the Ministry of New and Renewable Energy (MNRE). It is a Mini Ratna (Category-I) enterprise and serves as a dedicated public financial institution promoting, developing, and extending financial support for projects related to renewable energy and energy efficiency.

Over the years, IREDA has sanctioned and disbursed loans to numerous landmark green energy ventures, playing a pivotal role in India’s emergence as one of the world’s leading renewable energy markets.

A Win-Win for Investors and India’s Clean Energy Mission

The inclusion of IREDA bonds under Section 54EC represents a win-win proposition—providing tax relief for investors while enabling a greater flow of capital to India’s clean energy transition. As the nation charts its course toward carbon neutrality and climate resilience, instruments like these will be key enablers in bridging the green financing gap.

Through this initiative, India not only incentivizes responsible investing but also underscores its commitment to climate action, energy security, and sustainable development in line with its Panchamrit commitments and Net Zero goals for 2070.