Rule 146 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 146 of the Income-tax Rules, 2026 puts the tonnage tax option into Form No. 80, converts slot charters at 2.5 TEU to one net tonnage, and requires an audit report in Form No. 81.
The five limbs
Rule 146 is a single rule with five lettered clauses, all for Chapter XIII-G of the Act. The 1962 parallels are rules 11P to 11T.
| Clause | Subject |
|---|---|
| (a) | Application to opt or renew, in Form No. 80 |
| (b) | Deemed tonnage conversion basis |
| (c) | The incidental activities under section 228(7) |
| (d) | The charter-in limit computation |
| (e) | The audit report, in Form No. 81 |
The option and its renewal
Clause (a): an application under section 231(1) to opt for the Tonnage Tax Scheme, or under section 231(10) for renewing the option, shall be made in Form No. 80 and verified as specified therein. The same form serves both — there is no separate renewal form, and the choice of sub-section is what identifies which application is being made.
Deemed tonnage
Clause (b): deemed tonnage under section 227(4)(b) for the arrangements in column B is computed as in column C:
| Sl. | Arrangement | Basis of computation |
|---|---|---|
| 1 | Purchase of slots and slot charter | 2.5 TEU = 1 net tonnage (1 NT), TEU being a Twenty foot Equivalent Unit — a container of that size |
| 2 | Sharing of break-bulk vessel | (i) where cargo is restricted by volume, 19 cubic metres (cbm) = 1 NT; (ii) where cargo is restricted by weight, 14 metric tons = 1 NT |
Row 2 of rule 146 does not offer a choice. Which conversion applies turns on whether the cargo entitlement under the sharing arrangement is restricted by volume or restricted by weight — a question answered by the space charter or slot agreement itself. Using the volume basis for a weight-limited entitlement, or the reverse, changes the deemed tonnage and therefore the taxable income directly.
Incidental activities
Clause (c): the incidental activities referred to in section 228(7) are:
- maritime consultancy charges;
- income from loading or unloading of cargo;
- ship management fees or remuneration received for managed vessels; and
- maritime education or recruitment fees.
The list is closed. Revenue streams outside these four are not incidental activities for section 228(7), whatever their connection with the shipping business.
The charter-in limit
Clause (d): the limit for charter-in of tonnage of the qualifying ships referred to in section 232(15) to (20) during any tax year is computed by:
dividing the total number of chartered-in ton days by the total number of ton days operated by the company
The measure in rule 146 is ton days — tonnage multiplied by days operated. A company that charters in a small number of very large vessels for short periods can breach the limit while one that charters in many small vessels all year may not. Tracking the fleet by vessel, tonnage and days through the year is the only way to know the ratio before the year closes, since it cannot be managed retrospectively.
The audit report
Clause (e): the audit report of a qualifying company required under section 232(21)(b) shall be in Form No. 81. The rule does not state a due date; that follows the section.
Worked example
| Facts | Position under rule 146 |
|---|---|
| Company opts into the scheme | Form No. 80 under section 231(1) |
| Option renewed after the initial period | Form No. 80 again, under section 231(10) |
| Slot charter of 500 TEU | 200 NT deemed tonnage — 500 ÷ 2.5 |
| Break-bulk sharing of 3,800 cbm, entitlement restricted by volume | 200 NT — 3,800 ÷ 19 |
| Break-bulk sharing of 2,800 metric tons, entitlement restricted by weight | 200 NT — 2,800 ÷ 14 |
| Ship management fee for a third party's vessel | Incidental activity under clause (c) |
| Freight brokerage commission | Not on the closed list |
| Chartered-in ton days 4,20,000 against total ton days operated 10,00,000 | Ratio 42%, tested against section 232(15) to (20) |
Compliance checklist
- Use Form No. 80 for both the option and its renewal, citing the correct sub-section.
- Convert slot arrangements at 2.5 TEU to 1 NT.
- Establish from the contract whether break-bulk cargo is volume or weight restricted before converting.
- Confine incidental income to the four listed activities.
- Track chartered-in and total ton days vessel by vessel through the year.
- Compute the charter-in ratio as chartered-in ton days over total ton days operated.
- Obtain the Form No. 81 audit report under section 232(21)(b).
- Take the audit report's due date from the section, not the rule.
Common mistakes
- Choosing the break-bulk conversion that gives the better answer rather than the one the contract dictates.
- Counting vessels or days instead of ton days for the charter-in limit.
- Treating other shipping-related income as an incidental activity.
- Looking for a separate renewal form.
- Discovering the charter-in ratio only after the year has closed.