The Income-Tax department is mulling tax on carbon credit trade, estimated to yield for the exchequer an estimated Rs 1,000 crore.
The I-T department's preliminary study has found that large companies listed on stock exchanges are not making tax provisions against the profits out of the sale of carbon credits and are putting the money thus earned in other businesses.
India is the largest producer of carbon credits in the world.
"The sale of carbon credits and the subsequent payment of tax from the money earned is not strictly followed.
"More than 98 per cent of the companies are not following Section 28 of the Income-Tax Act, which requires profits and gains of business or profession to be parted as tax. This will fetch the exchequer around Rs 1,000 crore," a tax department source said.
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 for Climate Change.