Income tax law | Shipping companies

Section 115VA of the Income-tax Act, 1961: Computation of Profits from Qualifying Ships

Section 115VA provided an optional tonnage tax method for computing business profits of eligible shipping companies. For tax years beginning on or after 1 April 2026, the corresponding framework is principally contained in Section 226 and related provisions of the Income-tax Act, 2025.

Current-law distinction: The Income-tax Act, 2025 applies from 1 April 2026. The Income-tax Act, 1961 continues to govern earlier periods, including related assessments, proceedings and transitional matters. Read the section below in the context of the relevant tax year.

Meaning and scope of Section 115VA

Under Section 115VA of the Income-tax Act, 1961, notwithstanding Sections 28 to 43C, a company operating qualifying ships could elect to compute its income from that business in accordance with Chapter XII-G. The income determined under that Chapter was deemed to be its profits and gains chargeable under the head "Profits and gains of business or profession".

The expression "notwithstanding" gives this special computation method priority over the ordinary business-income computation provisions to the extent of an inconsistency. It does not dispense with the eligibility, approval and compliance conditions elsewhere in the tonnage tax scheme.

Important statutory definitions

Qualifying company: A company satisfying the requirements of Section 115VC of the 1961 Act.
Qualifying ship: A ship meeting Section 115VD, including applicable registration, tonnage and other statutory conditions and exclusions.
Operating a ship: The scope of ship operation, including relevant charter arrangements, is addressed in Section 115VB.
Tonnage tax company: Under Section 115V, a qualifying company for which the tonnage tax option is in force.
Tonnage income: The presumptively computed income of a tonnage tax company under Chapter XII-G, rather than its actual accounting profit from the relevant shipping activity.

How tonnage tax computation works

The tonnage tax regime substitutes a statutory measure of shipping income for ordinary computation of profits from qualifying operations. Under the 1961 Act, Sections 115VE, 115VF and 115VG address the manner of computation, tonnage income and the computation based on the vessel's prescribed tonnage and operating days. Section 115VI identifies relevant shipping income.

In general, the calculation depends on the vessel's net tonnage, statutory daily-income bands and the number of qualifying operating days, subject to the detailed rules and adjustments. It is not simply a tax on freight receipts or an automatic exemption of all shipping income.

Option, eligibility and compliance

The special method is available only where the company qualifies and validly exercises the statutory option. Under the 1961 Act, Section 115VP governs the option and approval, while Section 115VQ generally provided a ten-year option period, subject to specified cessation events. Other provisions address reserves, training, charter-in restrictions, separate accounts and audit, as applicable.

Income attributable to non-qualifying ships and activities outside the statutory tonnage tax business may remain subject to ordinary tax computation. A company should verify vessel certificates, the nature of charter arrangements, the income classification and compliance for each relevant year.

Position under the Income-tax Act, 2025

For tax years commencing on or after 1 April 2026, Section 226 of the Income-tax Act, 2025 sets out the tonnage tax framework. It provides that the tonnage tax business is treated separately from other business, applies the scheme where the prescribed option is exercised under Section 231, and deems tonnage income computed under Section 227 to be profits chargeable as business income. Section 228 addresses relevant shipping income.

The updated scheme also addresses qualifying inland vessels. Eligibility must be checked under the applicable 2025 Act provisions, including vessel status, certification, exclusions and the prescribed requirements. The change should not be read as making every inland transport business automatically eligible.

Illustrative application

Where an eligible company operates a qualifying vessel and has a valid tonnage tax option, the relevant shipping profit is calculated under the statutory tonnage formula instead of being determined merely by subtracting actual operating expenditure from shipping receipts. If the same company also earns unrelated business income, that other income must be considered separately under the applicable law.

Official legal references

Updated: 27 October 2026. This article is general legal information; statutory text and rules applicable to the relevant tax year govern.