The Income Tax Department has trained its sights on the carbon credits trading business in the country with a view to crack down on tax evasion in the sector, which has been estimated at Rs 1,000 crore.

The department has now decided to keep a tab on the trade by putting its intelligence wing on the job to gather information on entities involved in trading carbon credits and pass on the relevant data to I-T investigation and international taxation wings for taking action against tax evasion in this sector.

A preliminary study by the I-T Department found that large companies listed on the stock exchanges are not exactly ensuring taxes against the profits out of the sale of carbon credits and are putting the money earned in other businesses.

India is one of the largest producers of carbon credits in the world.

“The Directors of Income Tax (DIT) of the elite Central Information Branch (CIB) of the I-T Intelligence wing will be the nodal agency to deal with all the relevant information of carbon credits business and transactions,” a top I-T officer said.

The DITs, who are commissioner-rank officials of the department, are also being trained in all aspects of carbon credit taxation at various training institutions, right from the basics to trading on stock exchanges worldwide, the officer said.

In relevant cases, the investigation and international taxation units can undertake searches to obtain documents and other details of the firm and prepare a proper case for taxation, the officer added.

According to data gathered by the department, a number of companies are not aware of Section 28 of the Income Tax Act, related to taxation of profits and gains of a business or a profession, which is applicable in the case of carbon credits trading.

The DITs, about 18 in the various locations of country, will also create awareness about the taxation aspect of this trade to firms dealing in the business.

The Kyoto Protocol has created a mechanism under which countries that emit more carbon than the quota allotted to them buy carbon credits from those that emit less, in accordance with standards set by the United Nations Framework Convention on Climate Change.

The Income Tax Department has estimated that about 200 small and large Indian companies are trading in carbon credits and have also stated this in their annual reports.

Carbon credits are traded at the Chicago Climate Exchange, the European Climate Exchange and the Multi-Commodity Exchange of India (MCX), which launched futures trading in carbon credits in 2009.