In a setback for Indian Renewable Energy Development Agency (IREDA) and Housing and Urban Development Corp. Ltd. (HUDCO), the inclusion of these two public sector units (PSUs) under Section 54EC of the Income Tax Act remains undecided, with no final approval from the Ministry of Finance. The move to include IREDA and HUDCO under Section 54EC, which allows tax exemptions for investors on capital gains by investing in designated bonds, would provide the PSUs with an easier and lower-cost route to raising funds. However, sources indicate that the decision process has stalled.
“54EC inclusion has not happened for IREDA, HUDCO. The final decision has to be taken by the Revenue Department in the Finance Ministry," a government official told Moneycontrol. "There have been internal discussions on this since early 2024, and the Department of Revenue has sought comments from the Department of Economic Affairs (DEA). Despite ten reminders, DEA has yet to provide feedback,” the official added.
The decision to include these PSUs under Section 54EC was initially recommended by their overseeing ministries—the Ministry of Housing and Urban Affairs and the Ministry of New and Renewable Energy. Aligning IREDA and HUDCO with Section 54EC, according to officials, would directly support India’s broader objectives for renewable energy and housing. "It was a good idea to include the PSUs under Section 54EC, as these PSUs are in sync with the government’s vision for renewable energy and housing. They fit well with the government’s commitment to 3 crore new homes announced in June 2024 under Pradhan Mantri Awas Yojana and target for 50 percent of cumulative electric power capacity from non-fossil fuels by 2030,” the official explained.
Despite this alignment with national goals, the delay in feedback from the DEA has left the decision pending, while no substantial objections to the inclusion have been raised, he said.
In April, the government granted IREDA and HUDCO Navratna status, giving the state-run companies operational autonomy. HUDCO has significant exposure in financing affordable housing. IREDA finances renewable energy projects, including wind, hydro, bio, solar and technologies for efficiency and conservation.
Section 54EC
The interest rates of such bonds under Section 54EC are much lower than in the bond market. Despite that, it’s a popular way for investors to save on taxes. The bonds offer a fixed interest rate, usually between 5-6 percent, which provides predictable income. Although the rate may be lower than some other instruments, it’s a safer and tax-saving avenue.
Under the Income Tax Act, any long-term capital gains (LTCG) arising from the sale of immovable assets such as land and house are exempt if the money is invested in the PSUs notified under the Section. Bonds of state-run companies such as Rural Electrification Corp. Ltd (REC) and Power Finance Corp. (PFC) are currently eligible for such exemptions.
Under Section 54EC, investments in specified bonds must be made within six months of the sale of immovable property, and the invested amount cannot be redeemed before five years. Investors can invest up to Rs 50 lakh in 54EC bonds in a financial year, allowing substantial gains to be sheltered under this exemption.
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