Carbon Credit Taxation in India: GST, Income Tax and Accounting Rules for 2026 Buyers

India's compliance carbon market is going live through 2026, and for the first time it's finance teams, not just sustainability teams, budgeting for carbon credits. Most purchase plans stop at the per-credit price. The GST charge, the income tax treatment on the seller's side, and how the credit sits on your balance sheet are usually an afterthought, and that gap causes real surprises at year-end close. Here is what Indian corporate buyers need to know about carbon credit taxation in 2026, in plain terms. This is general information, not tax advice, so confirm treatment with your CA before you file.

GST on Carbon Credit Purchases: Budget for 18%

Carbon credits have attracted GST at 18% since October 1, 2021, under Notification No. 8/2021-Central Tax (Rate), which brought them in line with similar tradeable instruments such as renewable energy certificates and duty credit scrips. That means an invoice for credits priced at, say, ₹200 per tonne effectively costs your business ₹236 before any input tax credit. If your company is GST-registered and the credits are procured for business use — for example, to meet a disclosed net-zero commitment or a customer's supply chain requirement — input tax credit is generally available. Our 2026 buyer's guide covers how sourcing decisions affect this. Treatment can vary if the purchase is funded through CSR or falls outside your normal course of business, so flag it with your GST consultant before the first invoice, not after.

Income Tax and Section 115BBG: Who Actually Benefits

Section 115BBG, in force since assessment year 2018-19, gives a concessional flat 10% tax rate — with no expense deductions allowed — on income from the transfer of carbon credits. It is a seller-side provision: it benefits the project developer or generator selling UNFCCC-validated Certified Emission Reductions, not the corporate buyer retiring credits for offsetting. Two things are worth knowing before you assume it applies to your transaction. First, the concessional rate is written around UNFCCC and CDM-validated credits, and tax practitioners are still divided on whether voluntary-market credits verified by Verra or Gold Standard qualify the same way — the question remains genuinely unsettled. Second, the scope of the section itself is still being tested in court: Principal CIT v. Lanco Tanjore Power Co. Ltd. was pending before the Supreme Court as of mid-2026. If your organization also generates and sells credits, for example from a captive renewable energy or bio-energy project, this is the section your finance team needs to model — separately from what you pay as a buyer.

How to Account for Purchased Credits

There is no dedicated Ind AS for carbon credits yet, which is part of why practice varies across Indian companies. Credits bought and held for future retirement are commonly recognized as an intangible asset until they are used; credits bought and retired immediately against a specific emissions claim are more often expensed in the period they are bought. Neither approach is wrong, but consistency matters, because auditors increasingly expect companies to disclose their policy — especially once purchases show up in BRSR filings. Decide the treatment with your auditor before your first large purchase, not while closing the books.

CSR-Funded Purchases Follow a Different Rule

If your carbon credit purchase is funded out of mandatory CSR spend under Section 135 of the Companies Act, treat it as an application of income, not a deductible business expense — Explanation 2 to Section 37(1) of the Income Tax Act specifically disallows CSR expenditure as a deduction. Credits bought outside CSR, as part of ordinary business activity tied to a disclosed sustainability or customer commitment, generally follow normal Section 37(1) principles instead. The distinction is worth getting right at the purchase-order stage, because it changes both the GST input credit position and how finance reports the spend internally.

A Short Checklist Before You Sign

Before your next carbon credit purchase order, confirm:

1. Whether the invoice includes 18% GST, and whether your company can claim input tax credit on it

2. Whether the purchase is CSR-funded (no income tax deduction) or business-funded (normal Section 37(1) deduction rules apply)

3. Whether your finance team has a documented policy for intangible-asset vs. expense treatment

4. Whether the credit type — CER, VCS or Gold Standard — affects the seller's tax position and, in turn, the price you're quoted

5. Whether your CA has signed off on the specific transaction, since this article is general information and not a substitute for that review

Get the Tax Details Right Before You Buy

Csquare's carbon credit portfolios span standard CERs, solar avoidance and clean bio-energy credits, priced and documented so your finance team has what it needs for GST and disclosure purposes from day one. For a deeper look at how credit prices break down, see our carbon credit price guide for 2026. If you are budgeting a purchase for this financial year, talk to our team — we'll help you plan the transaction end to end, tax questions included.