Carbon Credit Fraud in India: White-Collar Crime & Tax Accountability

Summary: Carbon credit fraud is an emerging financial and environmental risk involving fictitious projects, exaggerated emissions reductions, duplicate sales, forged verification records, compromised registry accounts and deceptive investment schemes. The paper examines the Indian Carbon Market under the Energy Conservation (Amendment) Act, 2022 and Carbon Credit Trading Scheme, 2023, along with potential criminal liability under the Bharatiya Nyaya Sanhita, 2023, the Information Technology Act, 2000, the Prevention of Money-laundering Act, 2002, and the Companies Act, 2013. It analyses the special 10% income-tax treatment for qualifying carbon-credit transfers under Section 115BBG of the Income-tax Act, 1961 and Section 194 of the Income-tax Act, 2025, and the disputed GST classification of transferable credits. Through reported enforcement developments and Supreme Court decisions concerning money laundering and economic offences, it considers the responsibilities of developers, verification agencies, intermediaries, public officials and taxpayers. It recommends specific fraud offences, clearer tax definitions, verifier accountability, secure registry controls, better inter-agency information sharing and stronger protection for whistleblowers, while distinguishing deliberate fraud from good-faith errors.

Carbon Credit Fraud In India: The Emerging Face Of White Collar Crime And The Need For Tax Regulatory Accountability

SEO Title: Carbon Credit Fraud in India: Criminal Liability and Tax Regulation

SEO Description: Examine carbon credit fraud in India, criminal liability, income tax, GST, registry risks and reforms for regulatory accountability.

Abstract

Carbon credits were created to reward real reductions in greenhouse gas emissions, but as their market value has grown they have also become an attractive target for fraud. In India, the development of a national compliance carbon market and a large voluntary market has increased the number of persons who deal in these credits, and with it the opportunities for false projects, inflated claims, forged records, online account takeovers and investment scams. This paper examines how Indian law deals with carbon credit fraud. It analyses the Energy Conservation (Amendment) Act, 2022 and the Carbon Credit Trading Scheme, the Bharatiya Nyaya Sanhita, 2023, the Information Technology Act, 2000, the Prevention of Money Laundering Act, 2002 and the tax provisions applicable to carbon credits, namely Section 115BBG of the Income-tax Act, 1961 and its successor in the Income-tax Act, 2025, along with GST law. It also discusses the liability of project developers, verifiers, intermediaries and officials. The paper argues that general criminal law can punish many forms of carbon credit fraud, but India does not yet have a specific offence for it, and that unclear tax treatment makes it harder for tax authorities to detect misuse. It suggests clear statutory offences, a uniform definition of carbon credit across tax laws and better coordination between regulators. Keywords: Carbon credit fraud, white collar crime, Carbon Credit Trading Scheme, tax regulation, Section 115BBG, GST, India.

1. Introduction

A carbon credit represents the reduction or removal of one tonne of carbon dioxide or its equivalent. It is an intangible asset. Unlike a bag of rice or a barrel of oil, nobody can physically inspect it, and its value depends entirely on whether the reduction it claims actually took place. This is exactly why it is vulnerable to fraud. Carbon credit fraud can take many forms. A person may claim credits for a project that does not exist, or exaggerate the emissions a project has saved. The same credit may be sold twice. Documents given to verifiers or registries may be forged. Fraudsters may also hack into a registry account and transfer credits to themselves, or they may take money from investors by promising high returns on credits that were never delivered. In some cases the fraud lies in the tax treatment, where credits are classified or invoiced in a way that reduces tax or creates false input tax credit. Europe saw this at a large scale. Europol estimated that carbon credit fraud, mostly through VAT carousel schemes, cost European taxpayers more than five billion euros around 2009.¹ India has seen its own warnings. A 2023 investigation by the Centre for Science and Environment into the voluntary carbon market found serious problems in how credits are generated and sold.² In 2024 the Delhi Police investigated what was reported as the first case in India of carbon-type credits being stolen after cybercriminals hacked the Central Pollution Control Board portal. In 2026 the Delhi Police Special Cell registered an FIR in a case involving about Rs 2 crore, in which credits were allegedly moved out of a firm’s account on a registry portal by impersonation.³ Fraud of this type fits what Edwin Sutherland described as white collar crime, that is, crime committed in the course of an occupation by persons who are respectable and have technical knowledge.⁴ Carbon credit fraud is rarely violent and rarely visible. It is done through paperwork, software and financial structures. The main problem in India is that the law dealing with it is spread across several statutes and several regulators. This paper looks at those gaps, with special attention to the role of tax authorities.

2. Research Gap and Question

Most Indian writing on carbon markets deals with climate policy, market design or the tax rate on carbon credit income. There is much less analysis of carbon credit fraud as a white collar offence, and almost none that connects the criminal law with tax regulation. In particular, the difficulty of fitting carbon credit fraud into existing offences, the liability of verifiers and intermediaries, and the effect of unclear tax rules on detection require further study. This research tries to fill that gap. Is the existing legal and tax regulatory framework in India adequate to prevent, detect and punish carbon credit fraud and to ensure accountability of the persons involved?

3. Objectives and Research Methodology

The main objectives of this research are:

1. To understand the meaning and common forms of carbon credit fraud.

2. To examine the Indian laws and tax provisions that apply to carbon credits.

3. To analyse the liability of developers, verifiers, intermediaries and officials.

4. To identify weaknesses in the present legal and tax regulatory framework.

5. To suggest reforms to improve accountability.

This research follows a doctrinal method. It examines statutes, notifications, judicial decisions, investigative reports and news reports on carbon credit fraud. Since the compliance carbon market in India is still new, some of the material relied on consists of regulatory announcements and press reports, and these are cited as such.

4. Legal and Tax Framework Governing Carbon Credits in India

India has no single law on carbon credit fraud. The market is regulated by energy and environment law, while fraud is dealt with by general criminal law, cyber law, money laundering law and tax law.

4.1 Energy Conservation (Amendment) Act, 2022 and the Carbon Credit Trading Scheme

The Energy Conservation (Amendment) Act, 2022 empowered the Central Government to specify a carbon credit trading scheme.⁵ The Carbon Credit Trading Scheme (CCTS) was notified in June 2023. The Bureau of Energy Efficiency (BEE) is the Administrator, the Grid Controller of India Limited acts as the Registry, and trading is to take place on registered power exchanges under regulations of the Central Electricity Regulatory Commission. The scheme works through a compliance mechanism, which covers around 490 obligated industrial entities, and an offset mechanism for voluntary projects. The scheme has its own consequences for non-compliance. For example, the BEE procedure provides for a trading restriction on defaulting participants, in addition to penalties under the Energy Conservation Act, 2001. However, these provisions are directed at compliance failures. They do not create a separate offence for forging project data, manipulating verification or stealing credits from a registry account.

4.2 Bharatiya Nyaya Sanhita, 2023

The Bharatiya Nyaya Sanhita, 2023 (BNS), which replaced the Indian Penal Code from 1 July 2024, contains several provisions that can be used.⁶ Section 318 deals with cheating and applies when a person dishonestly induces another to part with money or property, for example by selling credits that do not exist. Section 319 deals with cheating by personation. Section 316 deals with criminal breach of trust and may apply to an agent or project manager who misuses credits entrusted to him. Sections 336 and 340 deal with forgery and with using a forged document or electronic record as genuine. Section 61 deals with criminal conspiracy, and

Section 111 deals with organised crime, which may be relevant where a group runs repeated schemes. However, none of these provisions mentions carbon credits. Prosecutors must still prove each ingredient of the offence, including dishonest intention and wrongful loss, which can be difficult when the credit is an intangible entry in a registry.

4.3 Information Technology Act, 2000

Many carbon credit frauds now happen through portals, emails and digital accounts. Sections 43 and 66 of the Information Technology Act, 2000 deal with unauthorised access to a computer resource, Section 66C with identity theft, and Section 66D with cheating by personation using a computer resource. These provisions fit cases such as the alleged email spoofing and registry account takeover in the 2026 Delhi case. Their limitation is that they punish the cyber act but do not address the underlying credit as an asset.

4.4 Prevention of Money Laundering Act, 2002

The Prevention of Money Laundering Act, 2002 may apply if the proceeds of a scheduled offence, such as cheating or forgery, are layered or used through carbon credit transactions. Because carbon credits can be transferred electronically and valued subjectively, they may be used to move or disguise value. However, the Act depends on the existence of a scheduled offence, and suspicious pricing alone does not amount to money laundering.

4.5 Income Tax Law

Section 115BBG was inserted in the Income-tax Act, 1961 by the Finance Act, 2017, with effect from assessment year 2018-19. It taxes income from the transfer of carbon credits at a flat 10 per cent on the gross amount, with no deduction for expenditure.⁷ The same approach has been carried into Section 194 of the Income-tax Act, 2025.⁸ The definition of carbon credit is linked to credits certified under the UNFCCC framework or by an agency specified by the Government. Commentators have pointed out that it is unclear which of the new credits under the Indian scheme, and which voluntary credits, fall within this definition. This uncertainty affects both honest taxpayers and tax officers.

4.6 Goods and Services Tax

Under GST, the main difficulty is classification. The question is whether a carbon credit is goods, services or something else, and the answer affects the rate, the place of supply and the availability of input tax credit. Carbon credits are generally understood to attract GST at 18 per cent, with exports treated as zero-rated, but the position has been debated. Where classification is unclear, there is room for wrongly claimed input tax credit and fake invoicing, which are the same weaknesses that fraudsters exploited in the European carbon markets.

5. Criminal Liability in Carbon Credit Fraud

Carbon credit fraud usually involves several persons, and liability depends on the role of each. Project developers and promoters: A developer who knowingly submits false data or invents a project to obtain credits may be prosecuted for cheating, forgery and conspiracy. If the developer is a company, officers in default may face action, and Section 447 of the Companies Act, 2013 on fraud may also apply. Verifiers and auditors: Third party verifiers have the duty to check claims independently. If they knowingly certify false claims, they may be liable for abetment or conspiracy. A negligent verifier is harder to prosecute, because negligence is not by itself a criminal offence, although it may lead to loss of accreditation and civil liability. Brokers, intermediaries and investment firms: Persons who sell credits or take money on promises of fixed returns may be liable for cheating, and for criminal breach of trust if funds are diverted. Where the scheme resembles a collective investment, securities law may also be attracted. Cyber offenders: Persons who hack portals or impersonate account holders may be liable under the Information Technology Act, 2000 together with the BNS provisions on cheating, personation and forgery. Public officials: An official of a regulator or registry who accepts a bribe to approve a project or manipulate records may be prosecuted under the Prevention of Corruption Act, 1988. This depends on the person being a public servant. Taxpayers and buyers: A person who knowingly claims input tax credit on a sham credit transaction, or conceals income from credit sales, may face prosecution and penalties under the GST law and the income tax law. It is important to understand that registry action, tax proceedings and criminal prosecution are different processes. A registry can cancel credits or suspend a participant, and a tax officer can raise a demand, but imprisonment can be imposed only by a criminal court after trial.

6. Important Judicial and Institutional Developments

There is, as yet, no reported Supreme Court judgment dealing specifically with carbon credit fraud. The following developments are relevant because they show how courts and institutions approach economic offences and carbon market misconduct.

Vijay Madanlal Choudhary v. Union of India

In Vijay Madanlal Choudhary v. Union of India, the Supreme Court upheld the key provisions of the Prevention of Money Laundering Act, 2002 and explained the scope of the offence of money laundering as being linked to the proceeds of a scheduled offence.⁹ This matters for carbon credit fraud because it shows that the financial trail of a fraud can be pursued separately, but only once a scheduled offence is established.

State of Gujarat v. Mohanlal Jitamalji Porwal and Y.S. Jagan Mohan Reddy v. CBI

In these cases the Supreme Court held that economic offences form a separate class and are a serious threat to the economy of the country, and that courts should deal with them with this in mind.¹⁰ This approach supports treating carbon credit fraud as a serious white collar offence rather than an ordinary commercial dispute.

The Delhi Police Special Cell Case (2026)

In this reported case, a firm alleged that it invested Rs 2 crore against a promised return and that its carbon credits were later moved out of its account on a registry portal after its registered email address was changed using fake credentials. An FIR was registered on 12 May 2026. The Delhi High Court later granted the accused protection from coercive steps and referred the parties to mediation, while the police sought permission for a polygraph test.¹¹ The allegations have not been proved in court. The case is important because it shows that carbon credit disputes are already reaching criminal investigation, and that the line between a commercial dispute and a crime is easily blurred.

Investigative and International Developments

The Centre for Science and Environment report of 2023 questioned the integrity of credits generated in India.¹² In October 2024, United States prosecutors charged the former chief executive and other executives of a carbon credit developer with fraud for allegedly manipulating project data to obtain more credits than they were entitled to. This was described as the first criminal action of its kind in the voluntary carbon market.¹³ These developments show the risk that verification alone cannot be relied on to prevent fraud.

7. Critical Analysis of the Existing Framework

Although India has several laws that can be used against carbon credit fraud, the framework has important weaknesses. First, there is no specific offence of carbon credit fraud. The prosecution has to fit the facts into cheating, forgery or conspiracy, and has to prove each ingredient, which is difficult when the

asset is a digital credit and the victim may be a market participant, an investor or the public at large. Second, regulatory responsibility is divided. The BEE administers the scheme, Grid India keeps the registry, the CERC regulates trading, the Ministry of Environment sets targets, and tax authorities, the police and the enforcement agencies act separately. There is no single mechanism that brings together information from all of them. Third, the tax treatment is unclear. The definition of carbon credit in the income tax law is tied to a specific validation, the tax is charged on the gross amount with no deduction, and the GST classification is debated. Uncertainty gives room for misclassification and for dispute, and it makes it harder for tax officers to tell an honest transaction from a sham one. Fourth, the voluntary segment depends heavily on private standard setters and private verifiers. Their work is not directly supervised by an Indian regulator, and a weak or conflicted verification can pass false claims into the market. Finally, evidence is difficult to collect. Carbon credit fraud may involve cross-border buyers, electronic accounts, spoofed emails and shell entities. Investigating agencies need technical knowledge that they may not yet have. These weaknesses show that India needs a clearer and more coordinated framework, with accountability for tax regulators and market regulators alike.

8. Suggestions and Recommendations

8.1 Specific Statutory Offences

Parliament should insert specific offences for carbon credit fraud, either in the Energy Conservation Act or in a separate law on the Indian Carbon Market. These should cover false statements to obtain credits, double counting, forgery of project records, unauthorised transfer of credits and false claims of carbon neutrality. A specific offence would remove the need to fit each case into general provisions.

8.2 Uniform Definitions

The definition of carbon credit should be consistent across the Energy Conservation Act, the income tax law and the GST law. The Government should clarify which credits, including Carbon Credit Certificates and voluntary offsets, fall under Section 194 of the Income-tax Act, 2025, and how they are to be classified under GST.

8.3 Liability of Verifiers

Accredited verification agencies should be made accountable for knowingly false certification, with penalties, loss of accreditation and criminal liability in serious cases. Standards of independence should be set to reduce conflicts of interest. At the same time, honest errors should not be treated as crimes.

8.4 Registry Security and Account Protection

The registry and the portals should have strong identity checks, multi-factor authentication, and a delay and confirmation step before credits are transferred or contact details are changed. Registry operators should keep audit trails and report suspected breaches promptly.

8.5 Data Sharing Between Regulators and Tax Authorities

There should be a formal arrangement for sharing information between the BEE, Grid India, the CERC, the income tax department, GST authorities and the Financial Intelligence Unit. Registry data on issuance, transfer and retirement should be matched with tax returns and invoices so that mismatches can be detected early.

8.6 Accountability of Tax Regulators

Tax regulatory accountability means that the authorities themselves must give clear rules and use them consistently. The tax authorities should issue clarifications and circulars on the treatment of carbon credits, publish risk indicators for audits, and report periodically on enforcement. Clear guidance protects honest taxpayers and focuses enforcement on real offenders.

8.7 Independent Investigation Capacity

A specialised unit with technical and financial expertise should be created within existing agencies to investigate serious carbon credit frauds. It should work with the police, cyber crime units and enforcement agencies so that cases are not delayed by disputes over jurisdiction.

8.8 Whistleblower Protection

Employees, consultants and verifiers who report fraud should be protected from retaliation, and a confidential reporting channel should be provided. Many carbon market frauds come to light only when insiders report discrepancies, as the C-Quest case showed.

8.9 Transparency and Investor Awareness

Project developers should publicly disclose project details, ownership and benefit sharing in a standard format. Investors and small businesses should be warned about schemes that promise fixed returns on carbon credits, and the regulators should publish lists of registered participants.

8.10 International Cooperation

India should cooperate with foreign registries, standard setters and enforcement agencies to trace cross-border credit transfers and to share information on fraud. This will become more important as Indian credits are used under international arrangements and as export markets raise their own requirements.

9. Conclusion

Carbon credit fraud is a new form of white collar crime that combines environmental claims, financial incentives and digital technology. India already has laws such as the Bharatiya Nyaya Sanhita, the Information Technology Act, the Prevention of Money Laundering Act and tax statutes which can be used in appropriate cases, but they were not drafted with carbon markets in mind. The Carbon Credit Trading Scheme is an important step towards a regulated carbon market. However, a market rule book cannot by itself deal with fraud. India needs clear statutory offences, consistent definitions of carbon credit in tax law, secure registries and effective coordination between market regulators and tax authorities. At the same time, honest projects and good faith errors should not be criminalised without evidence of dishonest intention. Ultimately, the credibility of the carbon market depends on the trust of buyers, investors and the public, and that trust can be protected only if the law holds those who abuse the system accountable.
Cases Discussed

• Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929 (Supreme Court). Discussed in relation to the scheduled-offence foundation of money-laundering proceedings.
• Y.S. Jagan Mohan Reddy v. CBI, (2013) 7 SCC 439 (Supreme Court). Cited concerning the seriousness of economic offences.
• State of Gujarat v. Mohanlal Jitamalji Porwal, (1987) 2 SCC 364 (Supreme Court). Cited concerning judicial treatment of economic offences.

References

Statutes

1. The Constitution of India, 1950.

2. The Energy Conservation Act, 2001, as amended by the Energy Conservation (Amendment) Act, 2022.

3. The Bharatiya Nyaya Sanhita, 2023.

4. The Information Technology Act, 2000.

5. The Prevention of Money Laundering Act, 2002.

6. The Prevention of Corruption Act, 1988.

7. The Companies Act, 2013.

8. The Income-tax Act, 1961 (Section 115BBG) and the Income-tax Act, 2025 (Section 194).

9. The Central Goods and Services Tax Act, 2017.

Cases and reports

1. Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929.

2. State of Gujarat v. Mohanlal Jitamalji Porwal, (1987) 2 SCC 364.

3. Y.S. Jagan Mohan Reddy v. CBI, (2013) 7 SCC 439.

4. Centre for Science and Environment, Discredited: The Voluntary Carbon Market in India (2023).

5. Europol, Carbon Credit Fraud Causes More Than 5 Billion Euros Damage for European Taxpayers (2009).

6. Ministry of Power, Carbon Credit Trading Scheme, 2023 (notified 28 June 2023).

Books, articles and news reports

1. Edwin H. Sutherland, White Collar Crime (Dryden Press, 1949).

2. Lakshmikumaran & Sridharan, How Is India Building a Compliance Carbon Market Without a Supporting Tax Architecture (2026).

3. Rahul Gahlawat, Delhi cops seek polygraph test of woman accused in Rs 2-cr carbon credit fraud, The Tribune (1 Nov. 2026).

4. Cybercons hack into CPCB’s portal to steal green ‘credit’, Times of India (20 July 2024).

5. EI News Network, BEE Sets Monthly Trading Schedule for Carbon Credit Certificates (2 Nov. 2026).

6. Rohini Krishnamurthy, Discredited again, Down To Earth (2024).

Notes

¹ ↩ Europol, Carbon Credit Fraud Causes More Than 5 Billion Euros Damage for European Taxpayers (Dec. 2009).

² ↩ Centre for Science and Environment & Down To Earth, Discredited: The Voluntary Carbon Market in India (2023).

³ ↩ Rahul Gahlawat, Delhi cops seek polygraph test of woman accused in Rs 2-cr carbon credit fraud, The Tribune, 1 Nov. 2026; Cybercons hack into CPCB’s portal to steal green ‘credit’, Times of India, 20 July 2024.

⁴ ↩ Edwin H. Sutherland, White Collar Crime (Dryden Press, 1949).

⁵ ↩ Energy Conservation (Amendment) Act, 2022 (India).

⁶ ↩ Bharatiya Nyaya Sanhita, No. 45 of 2023, § 318 (India).

⁷ ↩ Income-tax Act, 1961, § 115BBG, inserted by the Finance Act, 2017 (India).

⁸ ↩ Income-tax Act, 2025, § 194 (India).

⁹ ↩ Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929 (India).

¹⁰ ↩ State of Gujarat v. Mohanlal Jitamalji Porwal, (1987) 2 SCC 364 (India); Y.S. Jagan Mohan Reddy v. CBI, (2013) 7 SCC 439 (India).

¹¹ ↩ Gahlawat, supra note 3.

¹² ↩ Indictment of former C-Quest Capital executives announced by the U.S. Attorney’s Office, Southern District of New York, 2 Oct. 2024, as reported in Bloomberg (Oct. 2024).

¹³ ↩ Source footnote marker 13 appears in the uploaded paper without an accompanying reference text.