But not many knew that this could also bring taxmen knocking on their doors.

In a move that has nationwide ramifications, tax officials have now sought to recover income tax on revenues generated from the trade in carbon credits.

The industry estimates that about Rs. 8,000 crore to Rs. 10,000 crore of annual revenue comes to India from trading in carbon credits from various projects, with potential tax revenue of Rs. 3,000 crore as foreign exchange related inflow.

In a move that spells bad news to those involved in carbon credit trading, the Income Tax Department initiated investigation through a survey proceeding under Section 133A of the Income Tax Act on the Tamil Nadu Spinning Mills Association (TASMA) and its chief adviser, K. Venkatachalam.

The association has 215-member companies having 704 wind turbines for accumulating and claiming carbon credits under the Clean Development Mechanism of the United Nations Framework Convention on Climate Change (UNFCCC).

Besides TASMA, there are a number of projects in India that are registered with UNFCCC, which could also come under the scanner of the IT Department.

TASMA received Rs. 214 crore for carbon credits accumulated between 2003 and 2008 after selling at an alleged price of 8.6 euros per carbon credit from 2003 to 2006 and 7.22 euros from 2007 to 2012.

The entire credits were based on forward contract with a Swedish company, Carbon Asset Services, and the total crediting period is 10 years.

The amount received by TASMA has a potential tax impact of about Rs. 60 to Rs. 70 crore.

“Companies came together to secure carbon credits as individual trading in carbon credits is not a viable option,” sources said.

In a notice issued to a company, a copy of which is in the possession of The Hindu, the department contended that TASMA had not paid tax for the revenue recovered from the sale of a commodity (carbon credits).

The department's stand is that carbon credits accumulated by windmills in the process of generating electricity as a byproduct of power generation are a revenue item that should be taxed under Section 28 (iv) of Income Tax Act 1961.

“Two per cent of the total revenue of Certified Emission Reduction (CER) has to be shared with UNFCCC for their adaptation fund. The arrangement at TASMA was that the balance was to be shared between TASMA and the chief adviser in the ratio of 93:5,” the notice said.

It is also learnt that the Income Tax Department has not only issued notice to TASMA, but is also looking into the process of opening cases since 2003, the year when the companies started accumulating carbon credits.