What is Tonnage Taxation?

Tonnage taxation is a presumptive taxation scheme under which qualifying shipping companies operating qualifying ships are given this option.

What is Qualifying Shipping Companies and Qualifying Ships?

According to section 155VC a company is a qualifying Company if:

• It is an Indian Company
• The place of effective management (Place of effective management” (POEM) has been defined to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made.) of the company is in India;
• it owns at least one qualifying ship; and
• The main object of the company is to carry on the business of operating ships.

According to Section 115VD a Qualifying Ship:

• It is a seagoing ship/ vessel with 15 net tonnages or more
• Ship which is registered under Merchant Shipping Act, 1958 or a ship which is registered outside India has obtained a licence issued by Director General of Shipping under Merchant Shipping Act,1958
• Has a valid certificate stating its net tonnage is in force.

What is Excluded under the definition of Qualifying Ships?

• The main purpose of a seagoing ship or vessel which is used in the provisions of goods or services of a kind normally provided on land;
• Fishing Ship
• Factory Ship
• Ships used for sport activities and recreation
• Harbour and River ferries
• Offshore Installation
• A qualifying ship used as a fishing vessel for a period of more than thirty days during a previous year.

Main Activities of a Tonnage Tax Company

a. Activities from Operating Qualifying Ship.

b. Other ship related activities like:

• Shipping contract in respect of earning from pooling arrangement
• Affreightment Contract

c. Specific Shipping trade such as:

• On board or on shore activities comprising of fare, food and beverage consumed on Board by passenger ships
• Slot charters, joint charter,feeder services, container box leasing of container shipping.

Incidental Activities of Tonnage Tax Company

Activities which are incidental to the Main activities of Tonnage Tax Company are:

• Maritime Consultancy
• Loading and Unloading of Cargo
• Ship Management fees
• Maritime Education or recruitment fees

Option for application of Scheme

The Tonnage Tax Scheme shall apply if an option to that effect is made by the qualifying company in Form 65 to the Joint Commissioner having the Jurisdiction over the Company.

The Time frame for the application shall be 3 months from the date of its incorporation or the date on which it became a qualifying Company.

The Validity of the Option shall remain in force for 10 Years from the date on which the option is exercised.

Ceasing of the Scheme

The Scheme shall cease:

• If the Qualifying Company ceases to be a qualifying Company
• Default is made in section

1. 115VTT- Transfer of Profit to Tonnage Reserve Account
2. 115VU- Minimum Training Requirement for Tonnage Company
3. 115VT- Limit in Charter of Tonnage.

• Company is excluded in tonnage tax scheme under section 115VZC
• A declaration given in writing by the Company that the provisions may not be applicable.

Minimum Training requirement for Tonnage Tax Company- Section 115VU

A tonnage tax company shall comply with the minimum training requirement specified by the Director-General of Shipping and notified in the official Gazette by the Central Government.

Computation of Income under Tonnage Tax Scheme - Section 115 VE

The business of operating qualifying ships shall be considered as separate business distinct from all other activities or business carried on by the company and the profit shall be chargeable under the Head of Income, “Income from Profit and Gain from Business or Profession.”

Computation of Tonnage Income- Section 115 VG

Tonnage income of each qualifying ship shall be daily tonnage income multiplied by:

1. No of days in the previous year OR
2. No days in part of previous Years in case a company has operated a ship as a qualifying ship for only part of the previous Year.

Table Showing Daily Tonnage Income