The flat 10% rate, and its no-deduction catch
Income from the transfer of carbon credits has its own special rate. Under Section 115BBG, it is taxed at a flat 10%, plus the applicable surcharge and cess, and this applies to any taxpayer, a resident or a non-resident. The trade-off is in the fine print: the 10% is charged on the gross income, and no deduction is allowed for any expenditure or allowance in earning it. So if your costs were high the flat rate can be harsh, and if they were low it can be favourable, but either way the computation is simple.
This rate exists to end an old argument. Before Section 115BBG was inserted by the Finance Act 2017, with effect from the 2018-19 assessment year, several courts had held that money from selling carbon credits was a capital receipt and not taxable at all, the leading case being CIT v. My Home Power Ltd. Rather than keep litigating capital-versus-revenue, the law fixed a definitive 10% charge. For an NRI, the point is that this special rate reaches you the same way it reaches a resident, there is no separate exemption for non-residents.
The REC trap, TDS and GST
The most common mistake is to assume that every green certificate is a carbon credit. It is not. Renewable-energy certificates, known as RECs, are a different instrument, and there is a live argument, supported by tribunal reasoning, that RECs fall outside Section 115BBG and remain a capital receipt rather than income taxed at 10%. So before you apply the flat rate, be clear about which instrument you actually hold. If it is a genuine carbon credit validated under the international framework, 115BBG applies; if it is an REC, the position is different and worth a careful look.
On withholding, carbon-credit income earned by an NRI from an Indian project is Indian-source, so the Indian payer deducts TDS under Section 195, the section for payments to non-residents, renumbered to Section 393(2) under the Income-tax Act, 2025 from FY 2026-27. There is also a GST layer, separate from income tax: carbon credits and RECs are treated as goods, RECs have been classified at 12% GST, and an export of these credits is zero-rated. A practising CA confirms whether your instrument is inside 115BBG, applies the 10% correctly, and handles the TDS and GST so nothing is over- or under-charged.