Section 115BBG of Income Tax Act 1961: Tax on Income from Transfer of Carbon Credits
Section 115BBG of the Income-tax Act, 1961 provided a special tax rule for income arising from the transfer of carbon credits. The provision prescribed a 10% tax rate on such income and prohibited deduction of expenditure or allowance while computing that carbon-credit income.
Updated: 28 September 2026
Current-law note from 1 April 2026
Section 115BBG is a provision of the Income-tax Act, 1961. For transactions and tax periods governed by the law from 1 April 2026, readers should also check the corresponding provisions of the Income-tax Act, 2025 and the applicable Finance Act. This page retains Section 115BBG because it remains relevant for understanding the earlier law, assessments and proceedings to which the 1961 Act applies.
- Subject: income from transfer of carbon credits.
- Special tax rate under the 1961 Act: 10% on the carbon-credit income.
- Tax on the balance of total income is computed separately under the otherwise applicable provisions.
- No deduction for expenditure or allowance is permitted in computing the income covered by Section 115BBG.
- The section contains a statutory meaning of one unit of carbon credit.
What did Section 115BBG provide?
Where an assessee's total income included income from transfer of carbon credits, Section 115BBG required income-tax to be calculated in two parts. First, the income from transfer of carbon credits was taxed at 10%. Second, tax was calculated on the remaining total income after reducing the carbon-credit income.
| Component | Treatment under Section 115BBG |
|---|---|
| Income from transfer of carbon credits | Tax at 10% |
| Remaining total income | Tax computed as if total income were reduced by the carbon-credit income |
| Expenditure or allowance against carbon-credit income | No deduction allowed under the Act for computing the income covered by the section |
No deduction for expenditure or allowance
Sub-section (2) begins with a non-obstante clause. It overrides other provisions of the Act for this limited computation and provides that no deduction for any expenditure or allowance is available while computing the income from transfer of carbon credits referred to in sub-section (1).
Meaning of carbon credit under Section 115BBG
For the purpose of Section 115BBG, one unit of carbon credit means a reduction of one tonne of carbon dioxide emissions, or emissions of equivalent gases, validated under the United Nations climate-change framework and capable of being traded in the market at the prevailing market price.
Text and practical reading of Section 115BBG
Sub-section (1): Where total income includes income from transfer of carbon credits, the tax payable is the aggregate of tax at 10% on that carbon-credit income and the tax otherwise chargeable on the remaining total income.
Sub-section (2): No deduction for expenditure or allowance is permitted in computing the carbon-credit income covered by sub-section (1).
Explanation: The section defines one carbon credit by reference to a validated reduction of one tonne of carbon dioxide emissions or equivalent gases that can be traded at the prevailing market price.
Example of the tax mechanism
If an assessee has income from transfer of carbon credits together with other taxable income, the carbon-credit component is separated for the special 10% rate under Section 115BBG. The remaining income is then taxed under the provisions otherwise applicable to the assessee. Applicable surcharge and health and education cess, where relevant for the tax period and assessee, are additional to the basic income-tax computation.
Official references
For statutory verification, see the Income Tax Department Acts page and the Income Tax e-Filing portal. Readers dealing with periods from 1 April 2026 should verify the corresponding provision under the Income-tax Act, 2025 and the applicable Finance Act before relying on the earlier section number.
Note: Tax law depends on the relevant assessment year, nature of the assessee, applicable Finance Act and transitional provisions. This article is a general statutory guide and should be read with the law applicable to the relevant tax period.