Sections 233 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 233 to 235 close the tonnage tax Part. Section 233 says what happens to the scheme when companies amalgamate or demerge. Section 234 lets the Assessing Officer exclude a company that abuses the scheme. Section 235 defines the terms, including "qualifying ship" and "qualifying company". This article explains them as per the Income-tax Act, 2025 as amended by the Finance Act, 2026.
On amalgamation, the scheme applies to the amalgamated company if it is a qualifying company, and where the amalgamating companies were tonnage tax companies, for the period of the option with the longest unexpired period. On demerger, the scheme applies to the resulting company for the unexpired period. An abuse of the scheme leads to exclusion by written order with prior approval. A qualifying ship is a seagoing ship or vessel or inland vessel of fifteen net tonnage or more, with a valid tonnage certificate.
By section 1(3), the Act is in force from 1 April 2026, save as otherwise provided. Section 235 is shown as amended by section 64 of the Finance Act, 2026: clause (fa) (the Inland Waterways Authority of India) was inserted with effect from 1 April 2026. Later amendments, rules and notifications should be checked. For shipping companies, see our tax planning advisory page.
Section 233: amalgamation and demerger
| Sub-section | What it says |
|---|---|
| (1) | Where a company is amalgamated with another company or companies, then, subject to the other provisions of the section, the tonnage tax provisions apply as far as may be to the amalgamated company, if it is a qualifying company |
| (2) | If the amalgamated company is not a tonnage tax company, it must exercise the option under section 231(1) within three months from the date of approval of the scheme of amalgamation |
| (3) | If the amalgamating companies are tonnage tax companies, this Part applies as far as may be to the amalgamated company for the period for which the option with the longest unexpired period continues in force |
| (4) | If one of the amalgamating companies was a qualifying company on the 1st October, 2004 and had not exercised the option before the 1st January, 2005, this Part does not apply to the amalgamated company, and its income from operating qualifying ships is computed under the other provisions of the Act |
| (5) | In a scheme of demerger, where the demerged company transfers its business to the resulting company before the option expires, the scheme applies as far as may be to the resulting company for the unexpired period, if it is a qualifying company |
| (6) | The option of the demerged company remains in force for the unexpired period if it continues to be a qualifying company |
The way an option is made is in section 231; see our article on section 231, the option and its validity.
Section 234: avoidance of tax and exclusion
What is an abuse: sub-sections (1) to (3)
The scheme does not apply where a tonnage tax company is a party to a transaction or arrangement that amounts to an abuse of the scheme. A transaction or arrangement is an abuse if its entering into or application results, or would but for the section have resulted, in a tax advantage for (a) a person other than a tonnage tax company, or (b) a tonnage tax company in respect of its non-tonnage tax activities.
"Tax advantage" includes:
- (a) the determination of (i) the allowance for any expense or interest, or (ii) any cost or expense allocated or apportioned, which has the effect of reducing the income or increasing the loss from activities other than tonnage tax activities chargeable to tax, computed on the basis of entries in the books of account for the tax year in which the transaction was entered into; or
- (b) a transaction or arrangement which produces for the tonnage tax company more than ordinary profits which might be expected from tonnage tax activities.
The process: sub-sections (4) and (5)
The Assessing Officer shall, by an order in writing, exclude the company from the scheme. Before the order he must (a) serve a show-cause notice, calling upon the company to show on a specified date and time why it should not be excluded, and (b) obtain the prior approval of the Principal Chief Commissioner or Chief Commissioner.
Exceptions and effect: sub-sections (6) and (7)
- (6) The section does not apply where the company satisfies the Assessing Officer that the transaction or arrangement was a bona fide commercial transaction and was not entered into for the purpose of obtaining a tax advantage under this Part.
- (7) Where an order of exclusion has been passed, the option ceases to be in force from the first day of the tax year in which the transaction or arrangement was entered into.
The consequences of exclusion for fresh options are in section 231(9)(c) and (12)(c).
Section 235: the definitions
"For the purposes of this Part":
| Clause | Term | Meaning |
|---|---|---|
| (a) | Bareboat charter | Hiring of a ship or inland vessel for a stipulated period on terms which give the charterer possession and control, including the right to appoint the master and crew |
| (b) | Bareboat charter-cum-demise | A bareboat charter where ownership is intended to be transferred after a specified period to the company to whom it is chartered |
| (c), (e), (f), (fa) | Director-General of Shipping; fishing vessel; inland vessel; Inland Waterways Authority of India | Meanings taken from the Merchant Shipping Act, 1958, the Inland Vessels Act, 2021 and the Inland Waterways Authority of India Act, 1985 |
| (d) | Factory ship | Includes a vessel providing processing services in respect of processing of the fishing produce |
| (g) | Pleasure craft | A ship or inland vessel of a kind whose primary use is sport or recreation |
| (j) | Seagoing ship | A ship, if certified as such by the competent authority of any country |
| (k) to (o) | Tonnage income, tonnage tax activities (section 228(3) and (7)), tonnage tax business, tonnage tax company, tonnage tax scheme | Income, activities, business, company and scheme as computed or operating under this Part |
The terms of the Merchant Shipping Act, 1958, the Inland Vessels Act, 2021 and the Inland Waterways Authority of India Act, 1985 are those Acts' own; the reader should check them.
Qualifying company: clause (h)
A qualifying company is a company if (i) it is an Indian company, (ii) its place of effective management is in India, (iii) it owns at least one qualifying ship, and (iv) its main object is to carry on the business of operating ships. For sub-clause (ii), "place of effective management" means (A) the place where the board of directors or its executive directors make their decisions, or (B) where the board routinely approves the commercial and strategic decisions made by the executive directors or officers, the place where those directors or officers perform their functions.
Qualifying ship: clause (i)
A qualifying ship is a ship or inland vessel if:
- it is a seagoing ship or vessel or inland vessel of fifteen net tonnage or more;
- it is a ship registered under the Merchant Shipping Act, 1958, or a ship registered outside India for which the Director-General of Shipping has issued a licence under section 406 or 407 of that Act, or an inland vessel registered under the Inland Vessels Act, 2021; and
- a valid certificate indicating its net tonnage is in force.
It does not include: (A) a seagoing ship, vessel or inland vessel whose main purpose is the provision of goods or services of a kind normally provided on land; (B) fishing vessels; (C) factory ships; (D) pleasure crafts; (E) harbour and river ferries; (F) offshore installations; and (G) a qualifying ship used as a fishing vessel for more than thirty days during a tax year.
A worked example
Company names and periods are assumed; the longest-unexpired-period rule is from section 233(3).
Tidewater Cargo Ltd. and Marlowe Container Ltd. are both tonnage tax companies. Their options have six years and three years unexpired when they amalgamate into Tidewater Marlowe Ltd.
- Under section 233(3), this Part applies to the amalgamated company for the period for which the option with the longest unexpired period continues in force, that is six years.
- If the amalgamated company were not a tonnage tax company, section 233(2) would require it to exercise the option under section 231(1) within three months from the date of approval of the scheme of amalgamation.
A vessel of net tonnage 12 fails the first test of clause (i) (minimum fifteen); a harbour ferry of net tonnage 400 is excluded by sub-clause (E) whatever its tonnage.
Need help with shipping company structures?
Amalgamations, demergers and group arrangements around a tonnage tax company need careful reading of sections 233 and 234 and the definitions in section 235. Our team can review them with you under our tax planning advisory service.
Key takeaways
- After amalgamation, the scheme runs for the longest unexpired option period if the amalgamating companies were tonnage tax companies.
- A non-tonnage-tax amalgamated company must opt within three months of approval of the amalgamation scheme.
- On demerger, the resulting company takes the scheme for the unexpired period if it is a qualifying company.
- Abuse of the scheme leads to exclusion by written order, after a show-cause notice and prior approval; the option ceases from the first day of the tax year of the transaction.
- A qualifying ship needs fifteen net tonnage or more, a valid certificate and registration or licence as specified, and must not fall in the excluded classes.
Read next
- Section 232: tonnage tax reserve account and other conditions
- 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.