Computation of tonnage income.
227(1)
The tonnage income of a tonnage tax company for a tax year shall be the aggregate of the tonnage income of each qualifying ship computed as per sub-sections (2) and (3).
227(2)
For the purposes of sub-section (1), the tonnage income of each qualifying ship shall be computed as per the following formula:–– TI= DTI x N where,— TI = the tonnage income of each qualifying ship; DTI = the daily tonnage income of each qualifying ship; N = the number of days, in the tax year, or in part of the tax year in case the ship is operated by the company as a qualifying ship for only part of the tax year.
227(3)
For the purposes of sub-section (2), the daily tonnage income of a qualifying ship having tonnage referred to in column A of the Table below shall be the amount specified in the corresponding entry in column B thereof. --Table--
227(4)
In this Part, the tonnage shall—
- (a) mean the tonnage of a ship or inland vessel, as the case may be, indicated in the certificate referred to in sub-section (9); and
- (b) include the deemed tonnage, being the tonnage in respect of an arrangement of purchase of slots, slot charter and an arrangement of sharing of break-bulk vessel, computed in the manner, as prescribed.
227(5)
The tonnage shall be rounded off to the nearest multiple of hundred tons and for this purpose any tonnage consisting of kilograms shall be ignored and if the tonnage so rounded off, as per clause (a), is not a multiple of hundred, then, if the last figure in that amount is,—
- (a) fifty tons or more, the tonnage shall be increased to the next higher tonnage;
- (b) less than fifty tons, the tonnage shall be reduced to the next lower tonnage, which is a multiple of hundred and the tonnage so rounded off shall be the tonnage of the ship for the purposes of this section.
227(6)
No deduction or set off shall be allowed in computing the tonnage income under this Part, irrespective of anything contained in any other provision of this Act.
227(7)
Where a qualifying ship is operated by two or more companies by way of––
- (a) joint interest in the ship; or
- (b) an agreement for the use of the ship, and their respective shares are definite and ascertainable, the tonnage income of each such company shall be an amount equal to a share of income proportionate to its share of that interest.
227(8) Subject to the provisions of sub-section (7), where two or more companies
are operators of a qualifying ship, the tonnage income of each company shall be computed as if each had been the only operator.
227(9)
In this Part,––
- (a) the tonnage of a ship or inland vessel, as the case may be, shall be determined as per the valid certificate indicating its tonnage;
- (b) “valid certificate” means,— (i) in case of ships registered in India,— (A) having a length of less than twenty-four metres, a certificate issued under the Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 made under the Merchant Shipping Act, 1958; (B) having a length of twenty-four metres or more, an international tonnage certificate issued under the provisions of the Convention on Tonnage Measurement of Ships, 1969, as specified in the Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 made under the said Act; (ii) in case of ships registered outside India, a licence issued by the Director-General of Shipping under section 406 or 407 of the Merchant Shipping Act, 1958 specifying the net tonnage on the basis of Tonnage Certificate issued by the Flag State Administration, where the ship is registered or any other evidence acceptable to the Director-General of Shipping produced by the ship owner while seeking permission for chartering in the ship; (iii) in case of inland vessel registered in India, a certificate issued under the Inland Vessels Act, 2021.
Section Summary:
Section 227 of the new income tax law outlines the computation of tonnage income for companies operating qualifying ships under the tonnage tax regime. The tonnage tax regime is a simplified method of calculating taxable income for shipping companies based on the tonnage of their ships rather than their actual profits. This section provides the formula for calculating tonnage income, defines key terms, and specifies rules for rounding off tonnage, joint operations, and documentation requirements.
Key Changes:
- Introduction of Tonnage Income Formula: The section introduces a clear formula for calculating tonnage income for each qualifying ship, which was not explicitly detailed in the prior income tax law.
- Inclusion of Deemed Tonnage: The concept of "deemed tonnage" is introduced to account for arrangements like slot purchases, slot charters, and sharing of break-bulk vessels.
- Rounding Off Rules: Specific rules for rounding off tonnage to the nearest multiple of 100 tons are now codified.
- Joint Operations: Provisions for calculating tonnage income in cases of joint ownership or shared use of ships are clarified.
- No Deductions Allowed: The section explicitly prohibits any deductions or set-offs when computing tonnage income, which simplifies the tax calculation process.
Practical Implications:
- For Shipping Companies: Companies operating qualifying ships will now calculate their taxable income based on the tonnage of their ships rather than actual profits, reducing compliance complexity.
- Joint Operations: Companies sharing ownership or use of a ship must allocate tonnage income proportionately based on their share.
- Documentation Requirements: Companies must ensure they have valid tonnage certificates as per the Merchant Shipping Act or Inland Vessels Act, depending on the ship's registration.
- No Deductions: Shipping companies cannot claim deductions (e.g., depreciation, expenses) when computing tonnage income, simplifying tax calculations but potentially increasing taxable income.
Critical Concepts:
- Tonnage Income (TI): Income calculated based on the tonnage of a qualifying ship, using the formula:
TI = DTI x N- DTI: Daily tonnage income (as per the table provided in the law).
- N: Number of days the ship was operated as a qualifying ship in the tax year.
- Deemed Tonnage: Tonnage calculated for arrangements like slot purchases or sharing of break-bulk vessels, even if the company does not own the ship.
- Qualifying Ship: A ship that meets the criteria specified under the tonnage tax regime.
- Rounding Off: Tonnage is rounded to the nearest 100 tons. For example:
- 1,450 tons → 1,500 tons (rounded up).
- 1,430 tons → 1,400 tons (rounded down).
Compliance Steps:
- Determine Tonnage: Obtain a valid tonnage certificate for each ship as per the Merchant Shipping Act or Inland Vessels Act.
- Calculate Daily Tonnage Income: Use the table provided in the law to determine the daily tonnage income (DTI) based on the ship's tonnage.
- Compute Tonnage Income: Apply the formula TI = DTI x N for each qualifying ship.
- Aggregate Income: Sum the tonnage income of all qualifying ships to determine the total tonnage income for the tax year.
- Maintain Records: Keep valid tonnage certificates and documentation for joint operations or deemed tonnage arrangements.
Examples:
Single Ship Operation:
- A company operates a qualifying ship with a tonnage of 10,500 tons for 200 days in the tax year.
- Daily tonnage income (DTI) for 10,500 tons (rounded to 10,500) = ₹X (as per the table).
- Tonnage income (TI) = DTI x 200.
Joint Operation:
- Two companies jointly operate a ship with a tonnage of 15,000 tons. Company A owns 60%, and Company B owns 40%.
- Total tonnage income for the ship = DTI x N (number of days operated).
- Company A's tonnage income = 60% of total tonnage income.
- Company B's tonnage income = 40% of total tonnage income.
Deemed Tonnage:
- A company purchases slots on a break-bulk vessel with a deemed tonnage of 5,000 tons.
- The company must calculate tonnage income based on 5,000 tons, even though it does not own the ship.
This section simplifies tax calculations for shipping companies but requires careful adherence to tonnage measurement and documentation rules.