Section- 115VG: Tonnage Taxation
If Indian co.(has place of effective management in India) engaged in business of operating ships can compute its income on the basis of tonnage tax scheme if company owning at least one qualifying ship. This scheme is optional.
Computation of Tonnage Income
Income = Daily tonnage X No. of days the ship is operated in previous year
Daily Tonnage income means
| Qualifying ship having net tonnage | Daily Tonnage Income |
| Up to 1,000 | Rs:70 for each 100 tons |
| > 1,000 up to 10,000 | Rs:700 + 53 for each 1,00 tons |
| >10,000 up to 25,000 | Rs:5470 + 42 for each 1,00 tons |
| > 25,000 | Rs:11770 + 29 for each 1,00 tons |
Important Points regarding Tonnage Taxation
- Tonnage shall be rounded off to the nearest multiple of 100 tons.
- Deductions set off any loss shall not be allowed against tonnage income.
- Tonnage tax income shall not be liable to minimum alternative tax.
- Qualifying ship means seagoing ship or vessel of 15 net tonnage or more but exclude
1. A season going ship or vessel if the main purpose for which it is used is for the provision of goods or services of kind normally provided on land
2. Factory ships
3. Fishing vessels
4.Harbour and river ferries
5.Pleasure craft
6. Offshore installation
7. Qualifying ship which is used as a fishing vessel for a period of more than thirty days during a previous year - Exercising the above scheme is optional. Where an assessee opts for tonnage tax but wishes to opt out of the same within 10 years from the date on which he exercised option, he shall not be eligible to opt into tonnage tax for a period of 10 years from date of opting out.
- Company should not charter in more than 49% of net tonnage of qualifying ship operated by it. If it is crossed that limit then in that year this scheme not applicable.
- Company shall maintain separate books of account and obtain a report from charted accountant and furnish it before the due date the due date of specified u/s 44AB.
- Company shall credit to Tonnage tax reserve account at least 20% of the book profits derived from core and eligible incidental activities every which shall be utilised only for acquiring a new ship before expiry of 8 years.
- If any amount mis utilised then proportionate income shall be taxable as per normal provision of Act.
- If there is any shortfall in the amount credited to the Tonnage Tax reserve account (TTRA), then the following amount taxable under the other provisions of the Act;
- Taxable amount = Relevant shipping income X Shortfall in credit to reserves/ Minimum reserve to be credited
- Failure to create TTRA for 2 consecutive years will render tonnage scheme invalid from 3rd previous year.
- If ship transferred within 3 years from end of previous year in which it acquired if proportional amount shall deemed as income in year of transfer.
- If amount not utilized within 8 years, it shall be deemed as income of 9th year.
- Income from incidental activities shall not be considered only up to 0.25% of Turnover from core activities. Any excess, shall be taxable under normal provisions of the Act.
