Insertion of section 115BBG – Income from transfer of carbon credits to be taxed @ 10% – Inclusion in definition of income under section 2(24) and clarification regarding tax treatment for prior assessment years
Issue/Justification
The introduction of section 115BBG vide the Finance Act, 2017 providing for a 10 percent tax on income from transfer of carbon credits is a welcome move. This would go a long way in helping to resolve the uncertainty and litigation over the taxability of income from the transfer of carbon credits going forward.
Consequent amendment is required in the definition of the term ‘income’ under Section 2(24) of the Income-tax Act to include the income from transfer of carbon credits.
Further, the position regarding taxability of income from transfer of carbon credits for earlier years may be clarified since there have been divergent decisions given by the courts on whether such receipts are capital or revenue in nature. If the tax treatment is made applicable for earlier years also, it would garner more revenue from assessees who have not offered the same to tax on the ground that the same represents capital receipt. This would also help avoid future litigation and complete pending assessments.
The Government has also been taking several steps aimed at curbing litigation. These include coming up with schemes for dispute resolution both for legacy disputes arising out of retrospective amendments as well as other disputes that are pending in the appellate hierarchy. These measures and schemes are welcome steps and have been commended by the taxpayers. A similar scheme for income from transfer of carbon credits for the past years would go a long way towards furthering the Government’s stated objective of curbing litigation.
Suggestion
It is suggested that:
a. Section 2(24) may be amended to include income from transfer of carbon credits in the definition of “income”.
b. for the periods prior to Assessment Year 2018-19, an option may be given to taxpayers to voluntarily offer income from transfer of carbon credits to tax at the same 10% rate as contemplated in section 115BBG. This can help put an end to protracted litigation on the issue. Considering that such receipts have been held as non-taxable capital receipts by two High Courts, such a move will also benefit the exchequer.
The option to pay tax on such receipts at 10% could be structured as a one-time scheme open for a limited time.
