48. Income from transfer of carbon credits.
48.1 A carbon credit is an incentive given to an industrial undertaking for reduction of the emission of Green House Gases (GHGs) including carbon dioxide. There are several ways of reducing GHGs emissions such as switching over to wind and solar energy, forest regeneration, installation of energy-efficient machinery, landfill methane capture, etc. The Kyoto Protocol commits certain developed countries to reduce their GHG emissions, for which they will be given carbon credits. A reduction in emissions entitles the entity to a credit in the form of a Certified Emission Reduction (CER) certificate. The CER certificate is tradable and its holder can transfer it to an entity which needs carbon credits to overcome an unfavourable position on GHGs reduction.
48.2 The Income-tax Department has been treating the income on transfer of carbon credits as business income which is subject to tax at the rate of 30%. However, divergent decisions have been given by the courts on the issue as to whether the income received or receivable on transfer of carbon credits is a revenue receipt or capital receipt.
48.3 In order to bring clarity on the issue of taxation of income from transfer of carbon credits and to encourage measures to protect the environment, a new section 115BBG has been inserted in the Income-tax Act so as to provide that where the total income of the assessee includes any income from transfer of carbon credit, such income shall be taxable at the concessional rate of ten per cent (plus applicable surcharge and cess) on the gross amount of such income. No expenditure or allowance in respect of such income shall be allowed under the Income-tax Act.
48.4 Applicability: This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent years.