Section 228 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.
Section 228 says which profits of a tonnage tax company count as its "relevant shipping income", and so fall inside the tonnage tax scheme. It splits activities into core and incidental, caps the incidental profits at 0.25% of core turnover, deals with transfers within the company, and removes the book profit of these activities from the company's book profit under section 206(1)(c). This article explains it as per the Income-tax Act, 2025 as amended by the Finance Act, 2026.
Relevant shipping income is the profit from core activities plus the profit from incidental activities. Incidental profits above 0.25% of core turnover drop out and are taxed under the other provisions of the Act. Transfers between the tonnage tax business and other businesses are taken at market value. A loss in relevant shipping income is ignored for computing tonnage income. The book profit of these activities is excluded from book profit under section 206(1)(c).
By section 1(3), the Act is in force from 1 April 2026, save as otherwise provided. Section 228 is shown as amended by section 62 of the Finance Act, 2026: the words "or inland vessels" were inserted in sub-section (3)(b)(ii)(A), with effect from 1 April 2026. Later amendments, rules and notifications should be checked. For shipping companies, see our tax planning advisory page.
What counts as relevant shipping income: sub-section (1)
For this Part, the relevant shipping income of a tonnage tax company means (a) its profits from the core activities in sub-section (3), and (b) its profits from the incidental activities in sub-section (7). Under section 226(7)(b), relevant shipping income is not chargeable to tax separately; the company is taxed on tonnage income instead. See our article on sections 225 to 227.
The 0.25% limit: sub-section (2)
If the total of the incomes from incidental activities (sub-section (1)(b)) exceeds 0.25% of the turnover from core activities, the excess is not part of relevant shipping income and is taxable under the other provisions of the Act.
Core activities: sub-sections (3) and (4)
The core activities are (a) activities from operating qualifying ships, and (b) other ship-related or inland-vessel-related activities, as follows:
| Group | Core activity |
|---|---|
| (b)(i) Shipping contracts | (A) earnings from pooling arrangements; (B) contracts of affreightment |
| (b)(ii) Specific shipping trades | (A) on-board or on-shore activities of passenger ships or inland vessels comprising fares and food and beverages consumed on board; (B) slot charters, space charters, joint charters, feeder services and container box leasing of container shipping |
Sub-section (4) defines two terms:
- A pooling arrangement is an agreement between two or more persons for providing services through a pool, or operating one or more ships or inland vessels, and sharing earnings or operating profits on mutually agreed terms.
- A contract of affreightment is a service contract under which a tonnage 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.
Notifications: sub-sections (5) and (6)
The Central Government may, by notification, exclude any activity in sub-section (3)(b) or prescribe the limit up to which such activities are included in core activities. What has been notified is not in the text consulted and none is named here. Sub-section (6) requires every notification under this Part to be laid before each House of Parliament for a total of thirty days, with Parliament able to modify it or require that it not be issued, without prejudice to the validity of anything previously done.
Incidental activities: sub-section (7)
Incidental activities are those incidental to the core activities and as may be prescribed. The list is left to the Income-tax Rules, 2026; see our rule-wise guides.
Non-qualifying ships: sub-section (8)
Where a tonnage tax company operates a ship or inland vessel that is not a qualifying ship, the income attributable to operating it is computed under the other provisions of the Act.
Transfers between businesses: sub-sections (9) to (12)
| Sub-section | Rule |
|---|---|
| (9) | Where goods or services held for the tonnage tax business are transferred to another business of the company, or goods or services held for another business are transferred to the tonnage tax business, and the consideration recorded in the accounts of the tonnage tax business does not correspond to market value on the date of transfer, relevant shipping income is computed as if the transfer had been made at market value on that date |
| (10) | "Market value" means the price the goods or services would ordinarily fetch on sale in the open market |
| (11) | If, in the opinion of the Assessing Officer, computing in the manner of sub-section (9) presents exceptional difficulties, he may compute the income on such reasonable basis as he considers fit |
| (12) | Where, owing to close connection between the company and any other person or for any other reason, the course of business is so arranged that the company earns more than the ordinary profits which might be expected in the tonnage tax business, the Assessing Officer takes such income as may reasonably be deemed to have been derived therefrom |
Losses, common costs and depreciation: sub-sections (13) to (15)
- (13) If relevant shipping income is a loss, the loss is ignored for computing tonnage income.
- (14) Where the company also carries on a business or activity other than the tonnage tax business, common costs attributable to the tonnage tax business are determined on a reasonable basis.
- (15) Where an asset, other than a qualifying ship, is not used exclusively for the tonnage tax business, depreciation on it is allocated between the tonnage tax business and the other business on a fair proportion determined by the Assessing Officer, having regard to the use for each.
Book profit: sub-section (16)
The book profit or loss derived from the activities of a tonnage tax company referred to in sub-section (1) is excluded from the book profit of the company for the purposes of section 206(1)(c). Section 206 is the section on minimum alternate tax and alternate minimum tax; see our post on section 206, MAT and AMT.
A worked example
Names and amounts are assumed; the 0.25% limit is the one printed in section 228(2).
Seaglass Lines Ltd. is a tonnage tax company. Its turnover from core activities in the tax year is Rs. 40,00,00,000. Its incomes from incidental activities total Rs. 15,00,000.
- Limit under sub-section (2): 0.25% x Rs. 40,00,00,000 = Rs. 10,00,000
- Incidental income above the limit: Rs. 15,00,000 - Rs. 10,00,000 = Rs. 5,00,000, which is not relevant shipping income and is taxable under the other provisions of the Act
- Rs. 10,00,000 of the incidental income stays within relevant shipping income
Separately, the tonnage tax business transfers fuel to another business of the company and records Rs. 8,00,000, while the market value on the date of transfer is Rs. 9,50,000. Under sub-section (9), relevant shipping income is computed as if the transfer had been made at Rs. 9,50,000.
Need help with a shipping company's tax position?
The line between core and incidental activities, and the allocation of costs and depreciation, decides what sits inside the scheme. Our team can review the classification and the computation with you under our tax planning advisory service.
Key takeaways
- Relevant shipping income is profit from core activities plus profit from incidental activities.
- Incidental income above 0.25% of core turnover is taxed under the other provisions of the Act.
- Transfers between the tonnage tax business and other businesses are taken at market value.
- A loss in relevant shipping income is ignored for tonnage income.
- Book profit of these activities is excluded from book profit under section 206(1)(c).
Read next
- Sections 225 to 227: tonnage tax scheme and computation of tonnage income
- Sections 229 and 230: depreciation and exclusion of losses under tonnage tax
- Section 232: tonnage tax reserve account and other conditions
- 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.