Taxation of Carbon Credits
Income from sale of CERs should be accounted for under the head ‘Business and Profession’. However, in case of sale of Intangible, it would be taxable under the head ‘Capital Gains’ though most companies in India are recording earnings from carbon credit trading as Income from ‘Other Sources’ currently. Trading in CER is carried out either in spot market or in futures. Service tax could be applicable on account of dealing in CERs on the exchange platform, and in case of contracts resulting in delivery, VAT could be applicable.
Typically, carbon credits in India are sold to overseas buyers; hence, there would be no VAT applicable on these goods. Thus, sale of CERs to overseas buyers should qualify as exports. However, there is no explicit mention made in this regard by the revenue authorities. Further, in light of India undergoing a revolutionary amendment from regulatory perspective, like the proposed Direct Taxes Code, 2010, Goods and Service Tax, IFRS, etc., the position and treatment of carbon credits would have to be commented accordingly.
Source: NPCS Team
