Legal Reference
Sections 135A-135F (Tonnage Tax scheme), ITA 2025 | Applies to qualifying Indian shipping companies | Corresponds to Sections 115V-115VZC of ITA 1961 | 10-year commitment required
1. What is Tonnage Tax?
Tonnage Tax is a special optional tax regime available to Indian shipping companies — both domestic trade shipping and international shipping. Instead of paying income tax based on actual profits, a qualifying shipping company pays tax based on the notional income derived from the tonnage (carrying capacity) of its ships. This provides certainty, simplicity, and often a lower effective tax burden for shipping businesses with high capital costs.
2. Who Can Opt for Tonnage Tax?
The Tonnage Tax scheme under Sections 135A-135F of ITA 2025 is available to:
- Indian company engaged in the business of operating qualifying ships
- The company must be resident in India
- Ships must be qualifying ships — registered under Merchant Shipping Act, 1958 or flagged in another country but operated by the Indian company
- Option is exercised within 3 months of the start of the Tax Year (or from commencement of business)
- Once opted, the company must continue for at least 10 years — early exit attracts penalties
3. Tonnage Income Computation
Tonnage income is computed based on the net tonnage (NT) of each qualifying ship per day:
| Daily Tonnage (Net Tonnes) | Notional Income per 100 NT per day |
|---|
| Up to 1,000 NT | Rs 46 |
| 1,001 to 10,000 NT | Rs 35 |
| 10,001 to 25,000 NT | Rs 28 |
| Above 25,000 NT | Rs 19 |
Annual tonnage income = Daily NT income × 365 days. Tax at normal corporate rate (22-25%) applies on this computed income — regardless of actual profit or loss.
4. Benefits of Tonnage Tax
- Certainty — tax liability known at the start of the year
- Lower effective tax when actual shipping profits are high
- No disallowances — depreciation, interest, operating costs are all irrelevant
- Dividend distributed from tonnage tax profits is not subject to additional DDT
- MAT provisions do not apply to tonnage tax companies for qualifying shipping income
5. Non-Qualifying Income
Only income from qualifying ship operations falls under tonnage tax. Other income of the shipping company — interest, rental, non-ship trading activities — is taxed normally under the Income Tax Act, 2025. Separate books of accounts must be maintained for tonnage and non-tonnage income.
6. Exit Provisions
If a company opts out of the tonnage tax scheme before completing 10 years, the deductions and benefits enjoyed during the tonnage scheme period are withdrawn — and the company is assessed on actual profits for those years as if it had not opted for tonnage tax. This clawback provision makes the tonnage scheme a long-term commitment.
7. Why TaxClue
Tonnage tax requires careful evaluation — is actual profit higher or lower than tonnage income? The 10-year lock-in must be considered. TaxClue advises shipping companies on tonnage tax vs normal tax comparison. Contact us for shipping industry tax advisory under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
What is tonnage tax?
Tonnage tax is a special optional tax regime for Indian shipping companies where tax is computed on a notional income based on the carrying capacity (tonnage) of ships — not on actual profits. The notional income rate ranges from Rs 46 per 100 net tonnes/day (for ships up to 1,000 NT) to Rs 19 per 100 NT/day (for ships above 25,000 NT). Corporate tax at normal rates applies on this computed notional income. Once opted, the regime must continue for 10 years.
Who qualifies for the tonnage tax scheme?
The scheme is available to Indian resident companies operating qualifying ships registered under the Merchant Shipping Act or flagged in other countries but operated by the Indian company. The option must be exercised within 3 months of the Tax Year start. The 10-year commitment clause is significant — early exit results in all tonnage benefits being withdrawn and the company being assessed on actual profits for the entire period.
Is MAT applicable to tonnage tax companies?
No. Minimum Alternate Tax (MAT) provisions do not apply to tonnage income under the tonnage tax scheme. This is a significant advantage — companies with high book profits but low actual shipping profits are not penalised with MAT. However, any non-qualifying income (interest, rent, non-shipping activities) of the same company is subject to normal taxation including MAT provisions.
How is tonnage income computed?
Daily tonnage income is computed as: (Net Tonnage ÷ 100) × applicable rate per day (Rs 46/35/28/19 depending on size). Annual tonnage income = daily income × 365. For example, a ship with 8,000 NT: 80 units × Rs 35 × 365 = Rs 10,22,000/year. Corporate tax at 22% on Rs 10,22,000 = Rs 2,24,840 annual tax on this ship — regardless of whether actual profit was Rs 1 crore or Rs 5 lakh.
What happens if a company exits tonnage tax early?
If a shipping company opts out of the tonnage tax scheme before completing the mandatory 10-year period, a clawback applies: all tax deductions and benefits enjoyed during the tonnage scheme years are withdrawn, and the company is reassessed on its actual profits for those years as if it never opted for tonnage tax. This can result in significant additional tax demand. The exit provision makes tonnage tax a long-term strategic choice.
