Sections 225 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.
Sections 225 to 227 open Part G of Chapter XIII, the special provisions for shipping companies. Under them a company that operates qualifying ships may choose to have its shipping profits worked out on a notional daily amount per ship, fixed by the net tonnage of each ship, instead of the normal business computation. This article explains the three sections as per the Income-tax Act, 2025 as amended by the Finance Act, 2026.
A company operating qualifying ships may opt to compute that income under the tonnage tax scheme (section 225). It then computes tonnage income as daily tonnage income x number of days for each ship (section 227), using the Table by net tonnage. The tonnage tax business is a separate business, no deduction or set off is allowed in computing tonnage income, and the scheme applies only if an option is made under section 231.
By section 1(3), the Act is in force from 1 April 2026, save as otherwise provided. Section 227 is shown as amended by section 61 of the Finance Act, 2026. Later amendments, rules and notifications should be checked. For companies in the shipping business, see our tax planning advisory page.
Section 225: income from operating qualifying ships
Irrespective of anything in sections 26 to 54 (except sections 50 and 53), in the case of a company, the income from the business of operating qualifying ships:
- (a) may, at its option, be computed as per the provisions of this Part; and
- (b) is deemed to be the profits and gains of that business chargeable to tax under the head "Profits and gains of business or profession".
The ordinary business provisions are explained in our post on section 26, business and professional income. The meaning of "qualifying ship" and "qualifying company" is in section 235, covered in our article on sections 233 to 235.
Section 226: the tonnage tax scheme
| Sub-section | What it says |
|---|---|
| (1)(a) | A company is regarded as operating a ship or inland vessel if it operates any ship or inland vessel, whether owned or chartered by it, including a case where even a part of it is chartered in under an arrangement such as slot charter, space charter or joint charter |
| (1)(b) | A company is not regarded as operating a ship or inland vessel which it has chartered out 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 computes the profits from that business under the tonnage tax scheme |
| (3) | The tonnage tax business is a separate business, distinct from all other activities or business of the company |
| (4) | The profits in sub-section (2) are computed separately from the profits and gains of any other business |
| (5) | The scheme applies only if an option is made as per section 231 |
| (6) | A company not covered by the scheme, or which has not made an option under section 231, computes its profits and gains from the business under the other provisions of the Act |
| (7) | Subject to the other provisions of this Part, (a) tonnage income is computed under section 227 and is deemed to be profits chargeable under the head "Profits and gains of business or profession"; and (b) relevant shipping income referred to in section 228(1) is not chargeable to tax |
Two consequences of sub-section (7) are worth stating plainly. The tax base is the tonnage income and not the actual profit; and the relevant shipping income (explained in our article on section 228) is separately made not chargeable.
Section 227: computation of tonnage income
The formula, sub-sections (1) and (2)
The tonnage income of a tonnage tax company for a tax year is the aggregate of the tonnage income of each qualifying ship. For each ship the formula is TI = DTI x N, where TI is the tonnage income of each qualifying ship, DTI is its daily tonnage income, and N is the number of days in the tax year, or the part of the tax year in which the company operates the ship as a qualifying ship.
The Table, sub-section (3)
The daily tonnage income of a qualifying ship having net tonnage in column B is the amount in column C:
| Serial number | Qualifying ship having net tonnage | Amount of daily tonnage income |
|---|---|---|
| 1 | Up to 1000 | Rs. 70 for each 100 tons |
| 2 | Exceeding 1000 but not more than 10000 | Rs. 700 plus Rs. 53 for each 100 tons exceeding 1000 tons |
| 3 | Exceeding 10000 but not more than 25000 | Rs. 5470 plus Rs. 42 for each 100 tons exceeding 10000 tons |
| 4 | Exceeding 25000 | Rs. 11770 plus Rs. 29 for each 100 tons exceeding 25000 tons |
The bands join up: Rs. 700 plus Rs. 53 for each of the 90 hundreds between 1000 and 10000 gives the Rs. 5470 at which row 3 starts.
Meaning of tonnage, sub-sections (4) and (5)
- Tonnage means the tonnage of a ship or inland vessel indicated in the valid certificate referred to in sub-section (9), and includes the deemed tonnage for an arrangement of purchase of slots, slot charter and sharing of break-bulk vessel, computed in the manner prescribed.
- Tonnage is rounded off to the nearest multiple of hundred tons. Kilograms are ignored. If the last figure is fifty tons or more, the tonnage is raised to the next higher multiple of hundred; if less than fifty tons, it is reduced to the next lower multiple.
No deduction or set off, sub-section (6)
No deduction or set off is allowed in computing tonnage income under this Part, irrespective of anything in any other provision of the Act.
Shared operation, sub-sections (7) and (8)
Where a qualifying ship is operated by two or more companies by way of a joint interest or an agreement for use, and their shares are definite and ascertainable, each company's tonnage income is proportionate to its share. Subject to that, where two or more companies are operators, each computes tonnage income as if it had been the only operator.
Valid certificate, sub-section (9)
The tonnage is determined as per the valid certificate. The Act lists: for ships registered in India of length less than twenty-four metres, a certificate issued under the Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987; for length of twenty-four metres or more, an international tonnage certificate issued under the Convention on Tonnage Measurement of Ships, 1969, as specified in those rules; for ships registered outside India, a licence issued by the Director-General of Shipping under section 406 or 407 of the Merchant Shipping Act, 1958 specifying the net tonnage; and for an inland vessel registered in India, a certificate of registration under the Inland Vessels Act, 2021. These refer to other laws, which the reader should check.
One line on the amendment: the words "valid certificate" in sub-section (4)(a) and "certificate of registration" in sub-section (9)(b)(iii) were substituted for "certificate" by the Finance Act, 2026, with effect from 1 April 2026.
A worked example
Company names and figures are assumed; the amounts per hundred tons and the rounding rule are those printed in section 227. A tax year of 365 days is assumed.
Blue Meridian Shipping Ltd. is a tonnage tax company with two qualifying ships.
Ship A has net tonnage of 12,340 tons throughout the tax year.
- Rounding (section 227(5)): the last figure is 40 tons, less than fifty, so the tonnage is reduced to 12,300 tons.
- Table row 3 (exceeding 10000 but not more than 25000): Rs. 5,470 plus Rs. 42 for each 100 tons exceeding 10,000. Excess is 2,300 tons, which is 23 hundreds. 23 x 42 = Rs. 966.
- DTI = 5,470 + 966 = Rs. 6,436
- TI = 6,436 x 365 = Rs. 23,49,140
Ship B has net tonnage of 800 tons and is operated as a qualifying ship for only 100 days.
- Table row 1 (up to 1000): Rs. 70 for each 100 tons; 8 hundreds x 70 = Rs. 560
- TI = 560 x 100 = Rs. 56,000
Tonnage income of the company = 23,49,140 + 56,000 = Rs. 24,05,140. No deduction or set off is allowed against it.
Need help with the tonnage tax scheme?
Choosing the scheme, aligning the ship records with the certificates and computing the daily tonnage income all call for care in the first year. Our team can review eligibility and the computation under our tax planning advisory service before the option is made.
Key takeaways
- Section 225 lets a company opt to compute income from operating qualifying ships under this Part.
- The scheme works only if an option is made under section 231; otherwise the other provisions apply.
- Tonnage income is DTI x N for each qualifying ship, with DTI read from the Table by net tonnage.
- Tonnage is rounded to the nearest hundred tons: fifty or more rounds up, less than fifty rounds down.
- No deduction or set off is allowed in computing tonnage income.
- Tonnage is determined from the valid certificate described in section 227(9).
Read next
- Section 228: relevant shipping income under tonnage tax
- Sections 229 and 230: depreciation and exclusion of losses under tonnage tax
- Section 33: depreciation
- Chapter XIII: determination of tax in special cases
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.