Reducing Emission from Deforestation and Forest Degradation, and managing forest sustainably to sequester carbon (REDD+) has been considered as the most cost-efficient and fastest way of climate change mitigation in various Conferences of Parties of United Nations Framework Convention on Climate Change (CoP of UNFCCC). Channelizing funds from developed nations, as compensation for enhancing carbon stock is the fundamental mechanism under REDD+. It is claimed that financial incentives to the local forest-dependent communities will work as a positive externality to modify the behaviour of forest resource consumption and management pattern. For robust implementation of REDD+ project on ground level, different nation-states including India formulated different Benefit Sharing Mechanism (BSM) to disburse funds to the local forest dwellers. This paper critically assesses the institutional structure of BSM in India. It also examines the prospects of livelihood enhancement of the local communities at the policy level and what actually happening at the ground level. India adopted a top-down method of BSM where funds transfer at different levels from national to sub-national to joint forest management (JFM) based local level institutions. There is a number of problems discerned in the existing institutional mechanism: firstly, in international level, the intervention of carbon market promotes neo-liberal capitalist agenda which adversely impacting on the rights of local communities; Secondly, at the national level, centralized BSM constrains effectiveness of intervention in enhancing the livelihood of forest dependent local communities; and finally, at the local level, the existing non-statutory institution under JFM failed to achieve control over forest governance affecting sustainability of forest resources. It is argued that without recognizing forest property rights that are critical to the well-being of forest-dependent communities, benefit-sharing under REDD+ may not realize. Incentive-based programme like REDD+ would be successful if the rights and agency of forest-dependent local communities were recognized.