Climate Change is the most pressing concern of our time. From increasing annual mean temperature to rising pollution and from shifting weather patterns to loss of biodiversity, it is necessary that urgent steps be taken to atleast contain its effects. One of the ways through which such steps can be taken is through changes in the legal system governing the interaction with the environment. This piece evaluates the extent of environment friendliness embedded in the Income Tax Act, 1961. It would specifically focus on tax deductions available for activities towards environment protection and whether changes could be incorporated so that real impetus is provided for the same. On the corollary, it does not focus on non-direct tax based initiatives for environment protection.

But why specifically the Income Tax Act? Are there no other legislations that contribute more towards mitigating 

Climate Change? There are two reasons for my insistence on analysing the Income Tax Act. Firstly, I believe that, given the environmental emergency, it is important to analyse every legislation through an environment lens, interpret them in a manner that is environment friendly and highlight the deficiencies of such Acts. Secondly, tax savings are a priority for any assessee, and hence it can be used as a leverage to promote the Government’s long term vision for the environment. 

In the Union Budget 2020, there were no specific income-tax based deductions or exemptions provided for environment friendly initiatives. However, in the Union Budget 2019, the Finance Minister had proposed to provide an additional deduction of upto Rs. 1.5 lakh on the interest paid on loans taken to purchase electric vehicles.(1) This benefit is available for those who had availed loan to purchase electric vehicles between April 1, 2019 and March 31, 2023. This means that, if I were to buy an electric vehicle through a loan, I can deduct the amount paid as interest towards the loan from my total income, to the extent of Rs. 1.5 lakh. The government has introduced this benefit keeping in mind the updated FAME II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) policy which has allocated Rs. 10,000 crores over three years from April 2019 to encourage “faster adoption of electric and hybrid vehicles” by establishing necessary infrastructure to that effect.

Similarly,  section 80IA provides for 100% deduction of the profits and gains from an undertaking set up in India till 31.03.2017 for the generation/ generation and distribution of power (energy) for a period of 10 consecutive assessment years out of 15 years beginning from the year in which the undertaking has started the generation or generation and distribution of power. It is submitted that the phrase “generation of power” includes power that is derived from renewable energy sources and thus provides a profit linked incentive for generation/ generation and distribution of power through renewable energy sources. However, it must be noted that this provision is not specific to the renewable energy sector.