IREDA Bonds: Green Investment Tax Savings Under Section 54EC

On July 9th, 2025, the Central Board of Direct Taxes (CBDT) under the Ministry of Finance has officially notified that the bonds issued by Indian Renewable Energy Development Agency Ltd (IREDA) will be classified as ‘long-term specified asset’ under Section 54EC of the Income Tax Act, 1961. The official notification is stated as follows: “In exercise of the powers conferred by clause (ba) of Explanation to section 54EC of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies bonds redeemable after five years and issued on or after the date of this notification, by the IREDA (a Public Limited Government Company established as a Non-Banking Financial Institution), as ‘long-term specified asset’ for the purposes of said section.
IREDA shall utilise the proceeds from such bonds only for those renewable projects which can service the debt out of the project revenues without being dependent on the State Governments for the service of debts.”

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:

- 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.

Benefits of Investing in IREDA Bonds:

Support for Renewable Energy Projects:
The funds raised through these bonds are exclusively used for self-sustaining renewable energy initiatives that do not rely on state government subsidies.
Lower Cost of Funds for IREDA:
By attracting investor capital through tax incentives, IREDA reduces its borrowing costs, enabling faster financing of clean energy infrastructure.
Portfolio Diversification with ESG Edge:
IREDA bonds add a fixed-income option with environmental, social and governance (ESG) credentials. Investors interested in sustainability gain a credible avenue for green exposure.
Sovereign-Backed Credibility:
Being a Government of India enterprise, IREDA bonds carry high creditworthiness, offering low-risk exposure.
Boosts Renewable Ambitions:
Raised capital is solely channeled into self-sustaining renewable energy projects, accelerating India’s journey toward the 500 GW non-fossil fuel target by 2030. These bonds strengthen IREDA’s financial position, allowing it to scale up its project portfolio and meet its target to grow assets under management to ₹3.5 trillion by 2030.

Conclusion

A Win-Win for Investors and the Planet

The inclusion of IREDA bonds under Section 54EC marks a bold policy integration, where tax incentives encourage the redirection of capital gains into climate-positive infrastructure. It is a step forward for India’s green transition, while offering savvy investors a stable and meaningful tax-saving alternative.

As awareness grows, IREDA 54EC bonds could become the flagship product for climate-conscious taxpayers, laying the financial foundation for a sustainable future.