The Tonnage Tax Scheme (TTS) is a favourable tax regime introduced under Chapter XII-G of the Income Tax Act, 1961, specifically for Indian companies operating ships. Instead of paying tax on actual profits, shipping companies can opt to be taxed based on the net tonnage of ships operated. This scheme promotes the Indian shipping industry by offering tax certainty and lower effective tax rates.
Section 115VP – Method and Time of Opting for Tonnage Tax Scheme
🔹A qualifying company must opt in for the Tonnage Tax Scheme by filing a declaration in the prescribed form (Form 65).
🔹This option must be exercised on or before the due date of filing the income tax return under Section 139(1).
🔹Once exercised, the option cannot be withdrawn during the specified period.
⚖️ Note: Only companies engaged in the business of operating qualifying ships and fulfilling conditions under Section 115VC can opt for this scheme.
Section 115VQ – Period for Which Tonnage Tax Option to Remain in Force
🔹Once the tonnage tax option is exercised under Section 115VP, it remains in force for 10 assessment years.
🔹During this period:
The company cannot withdraw from the scheme.
The company must continue to satisfy the eligibility conditions under Chapter XII-G.
Section 115VR – Renewal of Tonnage Tax Scheme
🔹After the expiry of the initial 10-year period, the company can renew its option.
🔹The renewal must be exercised by filing a fresh declaration in Form 65 before the due date under Section 139(1) for the relevant assessment year.
🔹Each renewal will again be valid for another 10 years.
Section 115VS – Prohibition to Opt for Tonnage Tax Scheme in Certain Cases
🔹A company shall not be allowed to opt for the TTS if:
It has not qualified under the provisions of Chapter XII-G.
It has withdrawn from the scheme voluntarily before the expiry of the 10-year period.
It has been disqualified due to non-compliance, fraud, or misrepresentation.
🔹Such a company shall not be eligible to re-enter the scheme for the next 10 assessment years from the year of exit or disqualification.
Key Points to Consider
1. Only Indian companies owning or chartering qualifying ships are eligible.
2. Must maintain and furnish Tonnage Certificate issued by the competent authority.
3. No switching allowed once opted, until the expiry of the 10-year block.
4. Must not be engaged in non-shipping activities beyond a permitted threshold (as defined under Section 115VC & 115VD).
5. Return must be filed on or before the due date to exercise or renew the option.
6. Transfer of ship or business restructuring must comply with the continuity of eligibility.
Compliance and Documentation
🔹Form 65 must be submitted for initial and renewal declarations.
🔹Tonnage certificate must be obtained and retained for verification.
🔹Maintain separate books of accounts for shipping and non-shipping activities.
Tax Rate Under Tonnage Tax Scheme
