Massive deforestation induced by unplanned urbanization in the hilly watersheds of Brahmaputra basin, India, has led to ecological imbalance and is gradually transforming this basin into a multi-hazard zone. Removal of green cover is also becoming a matter of global concern, as it can accelerate the adverse impacts of climate change. People coming in search of work generally reside in the hills, as they cannot afford the high cost of land in plains. This has led to deforestation of the hilly area and has resulted in increased surface erosion from the upper catchments. Though sediment and water yield from these degraded watersheds could have been minimized by implementing ecologically sustainable management practices (EMPs), such as grass land, forest land and detention pond, poor economic conditions of the people stands in the way of field implementation. On the other hand, major industries, which can be held responsible for emission of greenhouse gases, can be asked to finance greenery development in these hilly watersheds through implementation of selected EMPs to earn carbon credit for them. To convert this concept into reality, the EMP combination must be selected in such a way that it restricts sediment and water yield from the watershed within the permissible limit and maximizes its carbon sequestration capacity at minimum possible cost. Such optimal planning is a prerequisite for preparing an acceptable logical agreement between Government and private companies. Keeping this in mind, an optimization model was developed and applied to a micro watershed of Guwahati to explore its applicability in actual field. The model developed in this study provides most logical carbon credit negotiation, subject to the availability of reliable value of CO2 sequestration for different EMPs.