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Budget proposes less tax on income from carbon credits

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Source: The Economic Times
Friday, February 02, 2018

 NEW DELHI: Budget 2018 proposes to reduce the tax on income from carbon credits to 10% from 30% as an incentive to industries to reduce emissions. 


Carbon credits is an incentive given to an industrial undertaking for reduction of the emission of green house gases, including carbon dioxide, through measures such as by switching over to wind and solar energy, forest regeneration, installation of energy-efficient machinery and landfill methane capture. 

"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, it is proposed to insert a new section 115BBG 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 Act," budget document said. 

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%. 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, it said. 

The Kyoto Protocol commits certain developed countries to reduce their green house gas emissions for which they are 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. 

The amendment will take effect from April 1, 2018. 


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