Green investment isn’t just a sustainability buzzword—it offers real financial advantages. Tax benefits of green investment in India are attracting more investors, combining eco-conscious choices with monetary gains. What are these benefits, and how can investors claim them? Let’s break it down.
Tax-Saving Options Through SEBI Green Bonds:
Green bonds, regulated by SEBI, are one of the most accessible tools for sustainable investment. These fixed-income securities fund eco-friendly projects, such as solar farms or wind energy parks. According to the Economic Times, Indian issuers raised over ₹25,000 crore through green bonds in FY24, showing rapid growth in investor interest.
The interest income from some of these bonds — especially sovereign ones — may be tax-exempt under specific schemes like Section 10 of the Income Tax Act. Moreover, when held for more than three years, long-term capital gains (LTCG) on listed green bonds are taxed at just 10% without indexation, offering yet another tax benefit.
Tax Deductions via Renewable Energy Projects:
Investors or businesses setting up renewable energy infrastructure — such as solar panels or wind turbines — can claim tax deductions under Section 80-IA of the Income Tax Act. This deduction allows 100% profit exemption for 10 consecutive years out of 15, for power-generating units using renewable energy. For startups or SMEs going green, this can significantly reduce taxable income.
For example, a solar startup can claim tax holidays and depreciation benefits, making capital recovery faster. In addition, depreciation of up to 40% is allowed on renewable energy assets — a smart incentive for eco-focused entrepreneurs.
ESG Funds:
ESG (Environmental, Social, Governance) mutual funds have surged in India. These funds invest in companies with strong sustainability credentials. While ESG funds do not offer direct tax exemptions like ELSS (Equity Linked Saving Schemes), they still qualify for LTCG tax rates of 10% after a year if gains exceed ₹1 lakh — similar to other equity mutual funds.
Moreover, choosing ESG funds supports companies that reduce carbon footprints and promote ethical governance — aligning your money with your values.
Government Incentives and Sustainable Finance Policies:
India’s budget and policy landscape increasingly supports green investments. The Ministry of Finance has introduced Viability Gap Funding (VGF) for public-private green infrastructure projects. Investors in these projects often enjoy indirect tax benefits, such as GST concessions and import duty exemptions.
Additionally, the Reserve Bank of India (RBI) now includes green finance as part of its priority sector lending guidelines. This encourages banks to offer better credit terms for sustainable investments — another indirect financial perk.
Conclusion:
The tax benefits of green investment in India offer a rare win-win: you can build wealth while fostering a cleaner future. India enhance returns while supporting sustainability, but require strict compliance to avoid penalties. Ready to invest green? Explore more tax insights now!
– Ketaki Dandekar (Team Arthology)
Read more about Tax benefits of green investment here – https://cleartax.in/green-finance