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 percent.

Moneycontrol Bureau

The Finance Minister Arun Jaitley today proposed to provide a concessional tax rate of 10 percent in case of income arising from transfer of carbon credit, in a bid to provide green growth.
The tax would be levied from April 1, 2018, over along with additional surcharge and cess.
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 percent.
Carbon credits is an incentive provided to industries to encourage reduction of the emission of green house gases, including carbon dioxide.
This done through several ways such as by 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 and for this, 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 is tradable and its holder can transfer it to an entity which needs Carbon Credits to overcome an unfavourable position on carbon credits.
However, divergent decisions have been given by the courts on the issue as to whether the income received or receivable on transfer of carbon credit is a revenue receipt or capital receipt.