IREDA, HUDCO Shares Shoot Up As Govt Said To Be Planning To Boost Bonds Via Tax Exemption

Significant Rise in IREDA and HUDCO Shares

Shares of Indian Renewable Energy Development Agency (IREDA) and Housing and Urban Development Corporation (HUDCO) have experienced substantial gains, with IREDA rising 90% and HUDCO surging over 121% so far in 2024. IREDA shares reached an intraday high of Rs 199.35, while HUDCO shares hit intraday high of Rs 289.55. These gains come in anticipation of favourable updates in the upcoming Union Budget.

Union Budget Provisions: A Potential Game Changer

The significant upward movement in IREDA and HUDCO shares is attributed to news that the Union Budget may introduce provisions to secure cheaper funds for these companies. According to a government official, the government is considering including IREDA and HUDCO under Section 54EC of the Income Tax Act. If implemented, investors buying bonds from these PSUs would be exempted from capital gains tax. Currently, bonds from state-run companies such as Rural Electrification Corp. Ltd (REC) and Power Finance Corp. (PFC) qualify for such exemptions.

Implications of Section 54EC Inclusion

Under Section 54EC, any long-term capital gains (LTCG) from the sale of immovable assets, such as land and houses, are exempt from tax if the proceeds are invested in specified bonds. With a tax rate of 20% on property sales, this exemption offers significant relief to assessees. Although the interest rates on these bonds are lower—54EC bonds currently offer an interest rate of 5.25% per annum compared to over 8% in the bond market—they remain a popular investment vehicle for tax savings.

The potential inclusion of IREDA and HUDCO under Section 54EC would align with the Modi government’s goals of boosting renewable energy production and providing affordable housing. The finance ministry has sought additional information from these companies, but no amendment to the Income Tax Act is needed; a simple notification will suffice.

Government’s Strategic Initiatives

The Modi government’s strategic initiatives are instrumental in this development. In April 2024, IREDA and HUDCO were granted Navratna status, enhancing their operational autonomy. Furthermore, the Modi 3.0 government approved plans to build 3 crore houses under the Pradhan Mantri Awas Yojana (PMAY) in its first Cabinet meeting. HUDCO, with significant exposure to financing affordable housing, stands to benefit immensely from these initiatives.

IREDA and HUDCO’s Strategic Roles

IREDA plays a crucial role in financing renewable energy projects, including wind, hydro, bio, solar, and technologies for efficiency and conservation. As of May 2024, India’s renewable energy sources, including large hydropower, have a combined installed capacity of 193.57 GW. The government aims to install 500 GW of renewable energy capacity by 2030, and IREDA’s involvement is pivotal in achieving this target.

HUDCO, on the other hand, focuses on financing housing and urban infrastructure projects. Its significant role in affordable housing aligns with the government’s PMAY goals, making it a critical player in the realisation of these ambitious housing plans.

Conclusion

The recent surge in IREDA and HUDCO shares reflects investor optimism regarding the government’s potential plan to include these PSUs under Section 54EC of the Income Tax Act. This inclusion would not only provide significant tax benefits to investors but also secure cheaper funds for these companies, enabling them to further their contributions to renewable energy and affordable housing.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.