Sections 229 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 229 and 230 deal with what happens to ship assets, depreciation, gains, losses and deductions once a company comes under the tonnage tax scheme. Section 229 splits the block of ships into a block of qualifying assets and a block of other assets and explains capital gains on the qualifying block. Section 230 shuts out deductions, loss carry-forward and Chapter VIII relief for the tonnage tax business. This article explains both as per the Income-tax Act, 2025 as amended by the Finance Act, 2026.
In the first tax year of the scheme, the written down value of the block of ships is divided in the ratio of the book written down value of qualifying and non-qualifying ships. Qualifying ships form a separate block. Gains on transfer of a qualifying asset are charged under sections 67 and 74, reading section 74 with the block of qualifying assets. For tonnage income, no Chapter VIII deduction is allowed and losses of the scheme years are not carried forward or set off.
By section 1(3), the Act is in force from 1 April 2026, save as otherwise provided. No Finance Act, 2026 amendment is named for these two sections. Later amendments, rules and notifications should be checked. For shipping companies, see our tax planning advisory page.
Section 229: depreciation and gains on tonnage tax assets
Splitting the block: sub-sections (1) and (2)
For computing depreciation under section 230(1)(d), the depreciation for the first tax year of the scheme (the "first tax year") is computed on the written down value of the qualifying ships. The written down value of the block of assets, being ships or inland vessels, on the first day of the first tax year is divided in the ratio of the book written down value of the qualifying ships (the "qualifying assets") and of the non-qualifying ships (the "other assets"):
- D = A x B / (B + C)
- E = A x C / (B + C)
| Letter | Meaning |
|---|---|
| D | Written down value of the block of qualifying assets on the first day of the tax year |
| E | Written down value of the block of other assets on the first day of the tax year |
| A | Written down value of the existing block of assets, being ships or inland vessels, on the first day of the tax year |
| B | Aggregate of the book written down value of qualifying assets on the last day of the preceding tax year |
| C | Aggregate of the book written down value of other assets on the last day of the preceding tax year |
"Book written down value" means the written down value as per books of account (sub-section (7)). The block rules for written down value generally are explained in our post on section 41, written down value and the block formula.
A separate block: sub-section (3)
The block of qualifying assets so determined forms a separate block of assets for this Part.
Asset changing use: sub-section (4)
| Case | Adjustment |
|---|---|
| (a) An asset in the block of qualifying assets begins to be used for purposes other than the tonnage tax business | An appropriate portion of the written down value is reduced from the qualifying block and added to the block of other assets: A = B x C / D, where A is the portion allocable to that asset, B the written down value of the block of qualifying assets on the first day of the tax year, C the book written down value of that asset, and D the aggregate book written down value of all assets in the qualifying block |
| (b) An asset in the block of other assets begins to be used for the tonnage tax business | An appropriate portion is reduced from the block of other assets and added to the block of qualifying assets: E = F x G / I, where E is the portion allocable, F the written down value of the block of other assets on the first day of the tax year, G the book written down value of that asset, and I the aggregate book written down value of all assets in the other block |
Allocation and brought-forward value: sub-sections (5) and (6)
For an asset in sub-section (4)(a) or (b), depreciation for the tax year is allocated by the number of days it was used for the tonnage tax business and for other purposes. Depreciation on the two blocks is allowed as if the written down value in sub-section (2) had been brought forward. See our post on section 33, depreciation.
Gains on transfer: sub-sections (8) to (10)
Profits or gains from the transfer of a capital asset forming part of the block of qualifying assets are chargeable to income-tax as per sections 67 and 74, and the capital gains so arising are computed as per sections 67 to 81. For this, section 74 applies as if the words "written down value of the block of assets" were replaced by "written down value of the block of qualifying assets". That expression means the written down value computed under sub-section (2).
Section 230: exclusion of deduction, loss, set off and similar benefits
Sub-section (1): computing tonnage income
Irrespective of anything in any other provision, in computing the tonnage income of a tonnage tax company for any tax year in which it is chargeable under this Part (the "relevant tax year"):
| Clause | Effect |
|---|---|
| (a) | Sections 28 to 52 apply as if every loss, allowance or deduction referred to in them and relating to or allowable for any of the relevant tax years had been given full effect to for that tax year itself |
| (b) | No loss referred to in section 108(1) or (2)(b) or 109(1) or 112(1) or 116(1), so far as it relates to the business of operating qualifying ships, is carried forward or set off where it relates to any of the tax years when the company is under the scheme |
| (c) | No deduction is allowed under Chapter VIII in relation to the profits and gains from the business of operating qualifying ships |
| (d) | In computing depreciation under section 33, the written down value of any asset used for the tonnage tax business is computed as if the company had claimed and been actually allowed depreciation for the relevant tax years |
In plain terms, scheme-year losses are not carried forward or set off, no Chapter VIII deduction is allowed on this business, and depreciation is taken as claimed and allowed when the written down value is worked out. Our posts on the loss rules include section 112 on business loss carry forward and the gateway to Chapter VIII deductions under section 122.
Sub-sections (2) to (4): losses before the option
Section 112 applies to losses that accrued to the company before its option for the scheme and which are attributable to its tonnage tax business as if those losses had been set off against the relevant shipping income in any of the tax years when the company is under the scheme. These losses are not available for set off against any income other than relevant shipping income in any tax year beginning on or after the company exercises its option under section 231. Any apportionment necessary is made on a reasonable basis.
A worked example
Names and amounts are assumed; only the formulas of section 229 are taken from the Act.
Harbourlight Marine Ltd. enters the scheme. On the first day of the first tax year the written down value of its existing block of ships (A) is Rs. 1,00,00,000. On the last day of the preceding tax year, the book written down value of its qualifying ships (B) is Rs. 60,00,000 and of its non-qualifying ships (C) is Rs. 40,00,000.
- B + C = Rs. 1,00,00,000
- D = 1,00,00,000 x 60,00,000 / 1,00,00,000 = Rs. 60,00,000 (block of qualifying assets)
- E = 1,00,00,000 x 40,00,000 / 1,00,00,000 = Rs. 40,00,000 (block of other assets)
Later, a qualifying ship with a book written down value of Rs. 6,00,000 begins to be used for another purpose. With the qualifying block's written down value at Rs. 60,00,000 and the aggregate book written down value of its assets also Rs. 60,00,000, the portion moved under section 229(4)(a) is 60,00,000 x 6,00,000 / 60,00,000 = Rs. 6,00,000, reduced from the qualifying block and added to the other block.
Need help with ship assets under the scheme?
The opening split of the block, and the later movement of an asset from one block to the other, must follow the formulas exactly and rest on the books of account. Our team can review the computation under our tax planning advisory service.
Key takeaways
- The existing block of ships is split into qualifying assets and other assets by the ratio of book written down values.
- Qualifying assets form a separate block; assets moving between the blocks carry a proportionate written down value.
- Depreciation on a re-purposed asset is allocated by days of use.
- Gains on transfer of a qualifying asset are charged under sections 67 and 74 with the qualifying block.
- No Chapter VIII deduction, and no carry forward or set off of scheme-year losses, for tonnage income.
Read next
- Section 228: relevant shipping income under tonnage tax
- Section 231: option for the tonnage tax scheme and its validity
- Sections 225 to 227: tonnage tax scheme and computation of tonnage income
- 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.