IREDA Bonds – Green investment: IREDA Bonds gain 54EC tax break, now eligible for capital gains tax exemption

The Central Board of Direct Taxes (CBDT) under the Ministry of Finance has officially designated bonds issued by the Indian Renewable Energy Development Agency (IREDA) as “long-term specified assets” under Section 54EC of the Income-tax Act, 1961. Effective from July 9, 2025, this notification makes IREDA bonds eligible for capital gains tax exemption, giving investors a new way to save taxes while supporting India’s clean energy ambitions.

“Recognition under Section 54EC reinforces IREDA’s pivotal role in accelerating renewable energy financing in the country,” said Pradip Kumar Das, Chairman and Managing Director of IREDA. “The tax-exempt status for our bonds offers an attractive investment avenue while ensuring increased capital availability for green energy projects, contributing to India’s 500 GW non-fossil fuel capacity target by 2030.”

IREDA bonds are debt instruments issued by the government-owned financial institution under the Ministry of New and Renewable Energy. These bonds help IREDA raise funds for renewable energy projects across India, making them an appealing choice for investors interested in sustainable finance.

Under Section 54EC, investors can invest long-term capital gains of up to ₹50 lakh in specified bonds, locking in funds for five years to gain exemption from tax on those gains. This move not only provides fiscal benefits but also channels private savings into the country’s green growth plans.

Proceeds from these bonds will exclusively fund renewable energy projects capable of servicing their debt independently, without reliance on state government support.

IREDA bonds come in various types, including tax-free bonds offering tax-exempt interest, taxable bonds with higher yields but taxable income, green bonds funding eco-friendly projects, and subordinated bonds carrying higher risks but potentially higher returns. Typically rated highly by agencies such as CARE and ICRA, these bonds offer fixed returns and strong government backing, enhancing safety for conservative investors.

Investors can buy IREDA bonds through online platforms like GoldenPi and IndiaBonds or via registered brokers dealing in debt securities. However, they should weigh risks such as interest rate fluctuations, inflation impacting real returns, and limited liquidity if needing to sell before maturity.

The tax break is expected to broaden participation among investors seeking safe, tax-efficient options, while significantly strengthening India’s renewable energy financing ecosystem. This initiative underscores the government’s resolve to accelerate sustainable energy development and achieve climate goals.