Section 231 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 231 tells a qualifying company how to opt for the tonnage tax scheme, within what time, who approves the option, how long it lasts and how it ends. The scheme in sections 225 to 235 applies only if this option is made. This article explains section 231 as per the Income-tax Act, 2025 as amended by the Finance Act, 2026.
A qualifying company applies to the Joint Commissioner having jurisdiction. The usual time is within three months of incorporation or of first becoming a qualifying company. The Joint Commissioner passes a written order of approval or refusal within three months from the end of the quarter in which the application is received. An approved option remains in force for ten years, can be renewed within one year after it ceases, and bars a fresh option for ten years in the cases in sub-section (12).
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 this section. Later amendments, rules and notifications should be checked. For shipping companies, see our tax planning advisory page.
Making the application: sub-sections (1) to (3)
| Sub-section | What it says |
|---|---|
| (1) | A qualifying company may opt for the tonnage tax scheme by an application to the Joint Commissioner having jurisdiction over the company, in the form and manner as may be prescribed |
| (2) | A qualifying company may apply within three months of the date of its incorporation, or of the date on which it becomes a qualifying company for the first time |
| (3) | A Unit of an International Financial Services Centre which has availed of deduction under section 147 may apply within three months from the date on which that deduction ceases |
The form and manner are left to the Income-tax Rules, 2026; see our rule-wise guides. "Qualifying company" is defined in section 235(h): see our article on sections 233 to 235.
The order of the Joint Commissioner: sub-sections (4) to (7)
On receipt of an application, the Joint Commissioner may call for such information or documents as he thinks necessary to satisfy himself about the company's eligibility. He then passes an order in writing:
- (a) approving the option; or
- (b) refusing to approve it, if he is not so satisfied,
and a copy of the order is sent to the applicant.
Four further rules apply:
- Hearing before refusal (sub-section (5)). No order of refusal is passed unless the applicant has been given a reasonable opportunity of being heard.
- Time limit (sub-section (6)). Every order under sub-section (4) is passed before the expiry of three months from the end of the quarter in which the application was received.
- From when the scheme applies (sub-section (7)). Where an order of approval is passed, this Part applies from the tax year in which the option is exercised.
- Validity (sub-section (8)). After approval, the option remains in force for ten years from the date on which it was exercised, and is taken into account from the tax year in which it is exercised.
When the option ceases: sub-section (9)
The option ceases to have effect from the tax year in which:
| Clause | Event |
|---|---|
| (a) | The qualifying company ceases to be a qualifying company |
| (b) | A default is made in complying with section 232(1) to (20) |
| (c) | The tonnage tax company is excluded from the scheme under section 234 |
| (d) | The qualifying company furnishes to the Assessing Officer a written declaration that the provisions of this Part may not be made applicable to it |
In each case the profits and gains of the company from the business of operating qualifying ships are computed as per the other provisions of the Act. The conditions in section 232 are explained in our article on section 232, the reserve account and other conditions.
Renewal: sub-sections (10) and (11)
An option approved under sub-section (4) may be renewed within one year from the end of the tax year in which the option ceases to have effect. Sub-sections (1) to (9) apply to a renewal in the same manner as they apply to the approval of an option, so a renewal also needs an application, an order and a hearing before any refusal.
The ten-year bar: sub-section (12)
A qualifying company is not eligible to opt for the scheme for ten years from the date of the event, if it:
- (a) on its own opts out of the scheme; or
- (b) makes a default in complying with section 232(1) to (20); or
- (c) is excluded from the scheme in pursuance of an order made under section 234(4).
The period of ten years runs from the date of opting out, default or order, as the case may be.
The time limits at a glance
| Step | Time allowed |
|---|---|
| Application by a qualifying company | Within three months of incorporation or of first becoming a qualifying company |
| Application by an IFSC Unit whose section 147 deduction has ceased | Within three months from the date the deduction ceases |
| Order on the application | Before the expiry of three months from the end of the quarter in which the application was received |
| Validity of an approved option | Ten years from the date the option is exercised |
| Renewal | Within one year from the end of the tax year in which the option ceases |
| Bar after opting out, default or exclusion | Ten years from the date of opting out, default or order |
A worked example
Names and dates are assumed. The Act does not define "quarter" in this section, so the example takes a quarter ending on 30 June purely for illustration.
Coralbay Ships Ltd. is incorporated on 10 March and becomes a qualifying company for the first time on 25 April.
- Under sub-section (2), it may apply within three months of the date on which it becomes a qualifying company for the first time: by 25 July.
- Suppose it applies on 20 May, in a quarter ending on 30 June. The Joint Commissioner must pass his order before three months from 30 June expire, that is before 30 September.
- If he proposes to refuse, sub-section (5) requires a reasonable opportunity of being heard first.
- If the option is approved and exercised in a tax year, it remains in force for ten years from the date it was exercised.
Suppose the company later makes a default in complying with section 232. The option ceases from that tax year under sub-section (9)(b), and under sub-section (12)(b) the company cannot opt again for ten years from the date of the default.
Need help opting for the tonnage tax scheme?
The option must be made within a short window and, once made, the conditions in section 232 have to be met year after year. Our team can review the timing, eligibility and conditions with you through our tax planning advisory service.
Key takeaways
- The application goes to the Joint Commissioner within three months, with a separate three-month window for an IFSC Unit whose section 147 deduction has ceased.
- A refusal needs a hearing and every order must be passed within three months from the end of the quarter of receipt.
- An approved option lasts ten years and can be renewed within one year after it ceases.
- The option ceases on loss of qualifying status, default under section 232, exclusion under section 234 or a written declaration.
- Opting out, default or exclusion bars a new option for ten years.
Read next
- Section 232: tonnage tax reserve account and other conditions
- Sections 229 and 230: depreciation and exclusion of losses under tonnage tax
- Sections 233 to 235: amalgamation, demerger, avoidance and definitions
- 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.