Income from Carbon Credits Trading – Income Tax Implication of Sale of Carbon Credits

Income from the sale of Carbon Credit is taxable in India with effect from the Financial Year 2017-18.

Income by way of transfer of carbon credits is taxable at a flat rate of 10% u/s 115BBG of Income Tax Act, 1961.

No other deductions in respect of any expenditures or allowances shall be allowed to the assessee while computing the Total Income insofar as it relates to Income from Sale of Carbon Credits.

What is Carbon Credits?

A carbon credit is a PERMIT given to any country or organization which limits them to PRODUCE the amount of carbon emissions/Green House Gases. In a generic sense, it is a certificate that shows the quantum of CO2 / Green House Gases an organization is permitted to emit. Such certificates can also be traded.

It may so happen that the limit given to a particular organization would be exhausted. Now, such organizations can obtain permit certificates from any other organizations to whom the permit is given. It is called as Carbon Trading.

Now, the buying entity has to pay the monetary incentive to the seller for the Certificates traded so far and such monetary incentive is taxed at the rate of 10% without allowing any deductions.