Section 115BBG of ITA, 1961 : Section 115Bbg: Tax On Income From Transfer Of Carbon Credits

Explanation using Example

Imagine a company, GreenTech Innovations, which is engaged in developing renewable energy projects. In the process, they earn carbon credits for reducing greenhouse gas emissions. These carbon credits can then be sold to other companies that wish to offset their emissions.

In the financial year 2022-2023, GreenTech Innovations sold a batch of carbon credits and earned an income of INR 5,00,000 from this sale. According to Section 115BBG of the Income-tax Act, 1961, the income from the transfer of carbon credits is taxed at a flat rate of 10%.

Therefore, GreenTech Innovations would calculate its tax on the carbon credit income at 10%, which would be INR 50,000 (10% of INR 5,00,000). Additionally, they would calculate their income tax on the rest of their income, excluding the carbon credit income. Also, as per the section, GreenTech Innovations cannot claim any deductions for expenses or allowances against the income from carbon credits while computing their taxes.