Income Tax 2025

Appearance

Method of opting of tonnage tax scheme and validity. ​

231(1) ​

A qualifying company may opt for the tonnage tax scheme by making an application to the Joint Commissioner having jurisdiction over the company in the form and manner, as prescribed, for such scheme.

231(2) ​

A qualifying company may make an application within three months, of the date of its incorporation, or of the date on which it becomes a qualifying company for the first time.

231(3) ​

A Unit of an International Financial Services Centre which has availed of deduction under section 147 may make an application within three months from the date on which such deduction ceases.

231(4) ​

On receipt of an application for option for tonnage tax scheme under sub-section (1), the Joint Commissioner may call for such information or documents from the company as he thinks necessary in order to satisfy himself about the eligibility of the company and after satisfying himself about such eligibility of the company to make such option for tonnage tax scheme, he shall pass an order in writing––

  • (a) approving the option for tonnage tax scheme; or
  • (b) refusing to approve the option for tonnage tax scheme, if he is not so satisfied, and a copy of such order shall be sent to the applicant.

231(5) ​

No order under sub-section 4(b) shall be passed unless the applicant has been given a reasonable opportunity of being heard.

231(6) ​

Every order under sub-section (4) shall be passed before the expiry of three months from the end of the quarter in which the application under sub-section (1) was received.

231(7) ​

Where an order granting approval is passed under sub-section (4), the provisions of this Part shall apply from the tax year in which the option for tonnage tax scheme is exercised.

231(8) ​

An option for tonnage tax scheme, after it has been approved under sub-section (4), shall remain in force for ten years from the date on which such option has been exercised and shall be taken into account from the tax year in which such option is exercised.

231(9) ​

An option for tonnage tax scheme shall cease to have effect from the tax year, in which—

  • (a) the qualifying company ceases to be a qualifying company;
  • (b) a default is made in complying with the provisions contained in section 232(1) to (20);
  • (c) the tonnage tax company is excluded from the tonnage tax scheme under section 234;
  • (d) the qualifying company furnishes to the Assessing Officer, a declaration in writing to the effect that the provisions of this Part may not be made applicable to it, and the profits and gains of the company from the business of operating qualifying ships shall be computed as per other provisions of this Act.

231(10) ​

An option for tonnage tax scheme 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.

231(11) ​

The provisions of sub-sections (1) to (10) shall apply in relation to a renewal of the option for tonnage tax scheme in the same manner as they apply in relation to the approval of option for tonnage tax scheme.

231(12) ​

A qualifying company,––

  • (a) which on its own, opts out of the tonnage tax scheme; or
  • (b) which makes a default in complying with the provisions contained in sections 232(1) to (20); or
  • (c) whose option has been excluded from tonnage tax scheme in pursuance of an order made under section 234(4), shall not be eligible to opt for tonnage tax scheme for ten years from the date of opting out or default or order.
Explanation

Section Summary: ​

This section outlines the process for a qualifying company to opt into the tonnage tax scheme, which is a special tax regime for shipping companies. It details the application process, timelines, approval mechanism, validity period, renewal process, and conditions under which the scheme may cease to apply. The tonnage tax scheme allows shipping companies to compute their taxable income based on the tonnage of their ships rather than actual profits, simplifying tax calculations.

Key Changes: ​

  1. Application Process: Companies must apply to the Joint Commissioner within three months of incorporation or becoming a qualifying company.
  2. Approval Timeline: The Joint Commissioner must pass an order within three months from the end of the quarter in which the application is received.
  3. Validity Period: The tonnage tax scheme remains in force for ten years from the date of approval.
  4. Renewal: Companies can renew the scheme within one year after the ten-year period ends.
  5. Exclusion Conditions: The scheme ceases if the company no longer qualifies, defaults on compliance, or voluntarily opts out.
  6. Reapplication Restrictions: Companies that opt out, default, or are excluded cannot reapply for the scheme for ten years.

Practical Implications: ​

  1. For Shipping Companies: This section provides clarity on how to opt into the tonnage tax scheme, ensuring a streamlined process for tax computation based on tonnage rather than profits.
  2. Compliance Burden: Companies must ensure timely application and adherence to compliance requirements to avoid losing eligibility.
  3. Renewal Planning: Companies must plan for renewal within the specified timeframe to continue benefiting from the scheme.
  4. Exclusion Risks: Non-compliance or voluntary opt-out can lead to a ten-year ban from re-entering the scheme, impacting long-term tax planning.

Critical Concepts: ​

  1. Tonnage Tax Scheme: A tax regime where taxable income is calculated based on the net tonnage of ships operated by the company, rather than actual profits.
  2. Qualifying Company: A company engaged in the business of operating qualifying ships, as defined under the law.
  3. Joint Commissioner: The tax authority responsible for approving or rejecting applications for the tonnage tax scheme.
  4. Default: Failure to comply with the provisions outlined in sections 232(1) to (20), which govern the operation of the tonnage tax scheme.

Compliance Steps: ​

  1. Application Submission: Submit an application to the Joint Commissioner within three months of incorporation or becoming a qualifying company.
  2. Documentation: Provide necessary information and documents as requested by the Joint Commissioner to prove eligibility.
  3. Approval Process: Await the Joint Commissioner’s decision, which must be communicated within three months from the end of the quarter in which the application was received.
  4. Renewal Application: If renewing, apply within one year after the ten-year validity period ends.
  5. Compliance Monitoring: Ensure adherence to the provisions of sections 232(1) to (20) to avoid default and potential exclusion from the scheme.

Examples: ​

  1. New Shipping Company: A newly incorporated shipping company applies for the tonnage tax scheme within three months of incorporation. The Joint Commissioner approves the application, and the company benefits from the scheme for ten years.
  2. Renewal Scenario: After ten years, the company applies for renewal within one year of the scheme’s expiry. The renewal is approved, and the company continues under the tonnage tax regime.
  3. Exclusion Due to Default: A company fails to comply with the provisions of sections 232(1) to (20). As a result, the tonnage tax scheme ceases to apply, and the company cannot reapply for ten years.

This section ensures a structured and transparent process for companies to opt into and benefit from the tonnage tax scheme while maintaining compliance with the law.