Income Tax Act

Official PDF pages 301–305

SOURCE PDF PAGE 301
( b )   not be regarded as operating a ship or inland vessel, as the case may
be, which has been chartered out by it on bareboat charter- cum -demise
terms or on bareboat charter terms for a period exceeding three years.
(2) A tonnage tax company engaged in the business of operating qualifying ships
shall compute the profits from such business under the tonnage tax scheme.
(3) The tonnage tax business shall be considered as a separate business distinct
from all other activities or business carried on by the company.
(4) The profits referred to in sub-section (2) shall be computed separately from the
profits and gains from any other business.
(5) The tonnage tax scheme shall apply only if an option to that effect is made as
per section 231.
(6) Where a company engaged in the business of operating qualifying ships,—
( a )   is not covered under the tonnage tax scheme; or
( b )   has not made an option in respect of the tonnage tax scheme as per
section 231,
the profits and gains of such company from such business shall be computed as
per other provisions of this Act.
(7) Subject to the other provisions of this Part,—
( a )   the tonnage income, shall be—
( i )   computed as per section 227; and
( ii )   deemed to be the profits chargeable under the head “Profits and
gains of business or profession”; and
( b )   the relevant shipping income referred to in section 228(1)   shall not be
chargeable to tax.
Computation of tonnage income.
227.   (1) The tonnage income of a tonnage tax company for a tax year shall be the
aggregate of the tonnage income of each qualifying ship computed as per
sub-sections (2) and (3).
(2) For the purposes of sub-section (1), the tonnage income of each qualifying ship
shall be computed as per the following formula:—
TI = DTI × N
where,—
TI =   the tonnage income of each qualifying ship;
DTI =   the daily tonnage income of each qualifying ship;
N =   the number of days in the tax year or in part of the tax year
in case the ship is operated by the company as a qualifying
ship for only part of the tax year.
(3) For the purposes of sub-section (2), the daily tonnage income of a qualifying
ship having tonnage referred to in column B of the Table below shall be the amount
specified in the corresponding entity in column C thereof:

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SOURCE PDF PAGE 302
TABLE
Sl.
No.
Qualifying ship having net tonnage   Amount of daily tonnage income
A   B   C
1.   Up to 1000.   `   70 for each 100 tons.
2.   Exceeding 1000 but not more than
10000.
`   700   plus   `   53 for each 100 tons
exceeding 1000 tons.
3.   Exceeding 10000 but not more than
25000.
`   5470   plus   `   42 for each 100 tons
exceeding 10000 tons.
4.   Exceeding 25000.   `   11770   plus   `   29 for each 100 tons
exceeding 25000 tons.
(4) For the purposes of thi s Part of the Chapter, the tonnage shall—
( a )   mean the tonnage of a ship or inland vessel, as the case may be, indicated
in the  
37
[ valid certificate ]   referred to in sub-section (9); and
( b )   include the deemed tonnage, being the tonnage in respect of an arrange -
ment of purchase of slots, slot charter and an arrangement of sharing of
break-bulk vessel, computed in the manner, as may be prescribed.
(5) The tonnage shall be rounded off to the nearest multiple of hundred tons and
for this purpose any tonnage consisting of kilograms shall be ignored and if the
tonnage so rounded off is not a multiple of hundred, then, if the last figure in that
amount is,—
( a )   fifty tons or more, the tonnage shall be increased to the next higher
tonnage;
( b )   less than fifty tons, the tonnage shall be reduced to the next lower ton -
nage,
which is a multiple of hundred and the tonnage so rounded off shall be the tonnage
of the ship for the purposes of this section.
(6) No deduction or set off shall be allowed in computing the tonnage income under
this Part of the Chapter, irrespective of anything contained in any other provision
of this Act.
(7) Where a qualifying ship is operated by two or more companies by way of—
( a )   joint interest in the ship; or
( b )   an agreement for the use of the ship,
and their respective shares are definite and ascertainable, the tonnage income of
each such company shall be an amount equal to a share of income proportionate
to its share of that interest.
(8) Subject to the provisions of sub-section (7), where two or more companies are
operators of a qualifying ship, the tonnage income of each company shall be com -
puted as if each had been the only operator.
37.   Substituted for “certificate” by the Finance Act, 2026, w.e.f.   1-4-2026 .

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SOURCE PDF PAGE 303
(9) For the purposes of this Part,—
( a )   the tonnage of a ship or inland vessel, as the case may be, shall be deter -
mined as per the valid certificate indicating its tonnage;
( b )   “valid certificate” means,—
( i )   in case of ships registered in India,—
( A )   having a length of less than twenty-four metres, a certificate
issued under the Merchant Shipping (Tonnage Measurement
of Ship) Rules, 1987 made under the Merchant Shipping Act,
1958 (44 of 1958);
( B )   having a length of twenty-four metres or more, an interna -
tional tonnage certificate issued under the provisions of the
Convention on Tonnage Measurement of Ships, 1969, as
specified in the Merchant Shipping (Tonnage Measurement
of Ship) Rules, 1987 made under the said Act;
( ii )   in case of ships registered outside India, a licence issued by the
Director-General of Shipping under section 406 or 407 of the
Merchant Shipping Act, 1958 (44 of 1958)   specifying the net ton -
nage on the basis of Tonnage Certificate issued by the Flag State
Administration, where the ship is registered or any other evidence
acceptable to the Director-General of Shipping produced by the
ship owner while seeking permission for chartering in the ship;
( iii )   in case of inland vessel registered in India, a  
38
[ certificate of regis -
tration ]   issued under the Inland Vessels Act, 2021 (24 of 2021).
Relevant shipping income and exclusion from book profit.
228.   (1) For the purposes of this Part, the relevant shipping income of a tonnage
tax company means—
( a )   its profits from core activities referred to in sub-section (3); and
( b )   its profits from incidental activities referred to in sub-section (7).
(2) Where the aggregate of all such incomes specified in sub-section (1)( b ) exceeds
0.25% of the turnover from core activities referred to in sub-section (3), such excess
shall not form part of the relevant shipping income for the purposes of this Part
and shall be taxable under the other provisions of this Act.
(3) The core activities of a tonnage tax company shall be—
( a )   its activities from operating qualifying ships; and
( b )   other ship-related or inland vessel related activities, as the case may be,
as follows:—
( i )   shipping contracts in respect of—
( A )   earning from pooling arrangements;
( B )   contracts of affreightment;
38.   Substituted for “certificate” by the Finance Act, 2026, w.e.f.   1-4-2026 .

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SOURCE PDF PAGE 304
( ii )   specific shipping trades, being—
( A )   on-board or on-shore activities of passenger ships  
39
[ or inland
vessels ]   comprising of fares and food and beverages consumed
on-board;
( B )   slot charters, space charters, joint charters, feeder services
and container box leasing of container shipping.
(4) For the purposes of sub-section (3)( b )( i ),—
( a )   “pooling arrangement” means an agreement between two or more persons
for providing services through a pool or operating one or more ships
or inland vessels as the case may be, and sharing earnings or operating
profits on the basis of mutually agreed terms;
( b )   “contract of affreightment” means a service contract under which a ton -
nage tax company agrees to transport a specified quantity of specified
products at a specified rate, between designated loading and discharging
ports over a specified period.
(5) The Central Government, if it considers necessary or expedient so to do, may,
by notification, exclude any activity referred to in sub-section (3)( b ) or prescribe
the limit up to which such activities shall be included in the core activities for the
purposes of this section.
(6) Every notification issued under this Part shall be laid, as soon as may be after it
is issued, before each House of Parliament, while it is in session for a total period
of thirty days which may be comprised in one session or in two or more successive
sessions, and if, before the expiry of the session immediately following the session
or the successive sessions aforesaid, both Houses agree in making any modification
in the notification, or both Houses agree that the notification should not be issued,
the notification shall thereafter have effect only in such modified form or be of no
effect; so, however, that any such modification or annulment shall be without prej -
udice to the validity of anything previously done under that notification.
(7) The incidental activities shall be the activities which are incidental to the core
activities and as may be prescribed for the purpose.
(8) Where a tonnage tax company operates any ship or inland vessels as the case
may be, which is not a qualifying ship, the income attributable to operating such
non-qualifying ship shall be computed under other provisions of this Act.
(9) Where any goods or services held for the purposes of—
( a )   tonnage tax business are transferred to any other business carried on by
a tonnage tax company; or
( b )   any other business carried on by such tonnage tax company are trans -
ferred to the tonnage tax business,
and, in either case, the consideration, if any, for such transfer as recorded in the
accounts of the tonnage tax business does not correspond to the market value of
39.   Inserted by the Finance Act, 2026, w.e.f.   1-4-2026 .

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SOURCE PDF PAGE 305
such goods or services as on the date of the transfer, then, the relevant shipping
income under this section shall be computed as if the transfer, in either case, had
been made at the market value of such goods or services as on that date.
(10) In sub-section (9), “market value”, in relation to any goods or services, means the
price that such goods or services would ordinarily fetch on sale in the open market.
(11) Where, in the opinion of the Assessing Officer, the computation of the relevant
shipping income in the manner specified in sub-section (9) presents exceptional dif -
ficulties, he may compute such income on such reasonable basis as he considers fit.
(12) Where it appears to the Assessing Officer that, owing to the close connection
between the tonnage tax company and any other person, or for any other reason,
the course of business between them is so arranged that the business transacted
between them produces to the tonnage tax company more than the ordinary profits
which might be expected to arise in the tonnage tax business, the Assessing Officer
shall, in computing the relevant shipping income of the tonnage tax company for
the purposes of this Part, take income as may reasonably be deemed to have been
derived therefrom.
(13) In this Part, in case the relevant shipping income of a tonnage tax company is a
loss, then, such loss shall be ignored for the purposes of computing tonnage income.
(14) Where a tonnage tax company also carries on any business or activity other than
the tonnage tax business, common costs attributable to the tonnage tax business
shall be determined on a reasonable basis.
(15) Where any asset, other than a qualifying ship, is not exclusively used for the
tonnage tax business by the tonnage tax company, depreciation on such asset shall
be allocated between its tonnage tax business and other business on a fair proportion
to be determined by the Assessing Officer, having regard to the use of such asset for
the purposes of the tonnage tax business and for the other business.
(16) The book profit or loss derived from the activities of a tonnage tax company,
referred to in sub-section (1), shall be excluded from the book profit of the company
for the purposes of section 206(1)( c ).
Depreciation and gains relating to tonnage tax assets.
229.   (1) For the purposes of computing depreciation under section 230(1)( d ), the
depreciation for the first tax year of the tonnage tax scheme (herein referred to
as the first tax year) shall be computed on the written down value of the qualifying
ships as specified under sub-section (2).
(2) The written down value of the block of assets, being ships or inland vessels,
as the case may be, as on the first day of the first tax year, shall be divided in the
ratio of the book written down value of the qualifying ships (herein referred to as
the qualifying assets) and the book written down value of the non-qualifying ships
(herein referred to as the other assets), as per the following formula:—
D = A ×  
B
B + C
E = A ×  
C
B + C
where,—