Tax Planning Meets Green Investment: IREDA Bonds Under Section 54EC

 What is IREDA?

  • Indian Renewable Energy Development Agency Limited (IREDA) is a ‘Navratna’ Government of India Enterprise under the administrative control of the Ministry of New and Renewable Energy (MNRE).
  • IREDA is based in New Delhi, operating nationwide.
  • Its mission is to pioneer financing for renewable energy and energy efficiency projects, under its motto, “ENERGY FOR EVER”.
  • It’s the backbone of green financing in India, enabling affordable funding for clean-energy projects across the country.

  • What is Section 54EC of the Income Tax Act, 1961?
  • The Section offers capital gains tax exemption when long-term gains from the sale of land or building are reinvested in notified bonds within 6 months of the sale.
  • You may invest your long-term capital gains into specified bonds issued by:
  1. REC (Rural Electrification Corporation) PFC (Power Finance Corporation) IRFC (Indian Railways Finance Corporation) NHAI (National Highways Authority of India) Additionally, new issuers can be Government‑notified, such as IREDA Bonds, which recently gained 54EC eligibility.
  • These bonds usually earn an interest rate ranging from 5-6% per annum. Such Interest is taxable in the hands of the earner.
Conditions and Features of Investing in 54EC Bonds:
  • 6-month window: You must invest in these bonds within 6 months of the sale of land or a building.
  • Lock-in period: Possession for 5 years is mandatory. Early redemption of the bonds voids the exemption under section 54EC.
  • Investment limit: Maximum INR 50 lakh per financial year.
  • Exemption amount: Minimum of – a) Capital gain amount b) Investment amount c) INR 50 lakhs
  • On Redemption of bonds on completion of a 5-year lock-in period, the principal is returned without capital gain tax. However, these bonds usually earn an interest rate ranging from 5-6% per annum. Such Interest is taxable under the head “Income from other Sources” each year.
Example of Investment in IREDA Bonds:
  • Imagine Mr. Ramesh sells his residential property on May 1st, 2025 and earns a long-term capital gain of ₹70 lakhs. He now has 6 months (until November 1st, 2025) to invest in 54EC-eligible bonds to save on capital gains tax.
  • With IREDA bonds now notified:i)He invests ₹50 lakhs in IREDA Bonds (issued after July 9, 2025). ii)He claims exemption on ₹50 lakhs of LTCG. iii)The remaining ₹20 lakhs is taxable under LTCG rules.
  • Want to explore more, check the link- https://uja.in/blog/taxation-times/green-investment-and-tax-planning-with-ireda-bonds/

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