Section 115VC: Qualifying Company under the Income-tax Act
Section 115VC of the Income-tax Act, 1961 specifies when a shipping company qualifies for the special tonnage tax regime. The corresponding qualifying-company definition under the Income-tax Act, 2025 is contained in Section 235(h).
Reviewed: 27 October 2026
1. Four conditions for a qualifying company
Under Section 115VC, for the purposes of Chapter XII-G, a company is a qualifying company only where all the following requirements are met:
- Indian company: The entity must be an Indian company, not merely a foreign company carrying on shipping operations in India.
- Place of effective management in India: The relevant decision-making location must be in India as described in the section's Explanation.
- At least one qualifying ship: The company must own one or more ships that satisfy the separate statutory definition of a qualifying ship.
- Main object: The company's principal object must be to carry on the business of operating ships.
2. Meaning of place of effective management
For Section 115VC, the Explanation identifies the place of effective management as either:
- The place where the board of directors or executive directors make their decisions; or
- Where the board routinely approves commercial and strategic decisions made by executive directors or officers, the place where those executives or officers actually perform their functions.
This is a provision-specific test. It should not be confused without analysis with the general place-of-effective-management test used for determining corporate tax residence.
3. What counts as a qualifying ship?
Ownership of a vessel is not enough by itself. The vessel must satisfy the conditions and exclusions in Section 115VD of the 1961 Act. These include prescribed tonnage, registration or licensing, and certification requirements, together with exclusions for specified vessel categories.
Under the Income-tax Act, 2025, the relevant definition appears in Section 235(i). The 2025 framework also addresses qualifying inland vessels, subject to statutory conditions.
4. Position under the Income-tax Act, 2025
For tax years governed by the Income-tax Act, 2025, the corresponding provisions should be read together:
| Provision | Subject |
|---|---|
| Section 235(h) | Definition of qualifying company, including the effective-management explanation. |
| Section 235(i) | Meaning of qualifying ship and qualifying inland vessel. |
| Section 226 | Operation and application of the tonnage tax scheme. |
| Section 227 | Computation of tonnage income. |
| Section 231 | Option for the tonnage tax scheme and its validity. |
| Section 232 | Conditions for applicability of the tonnage tax scheme. |
The Income-tax Act, 2025 applies from 1 April 2026. Earlier years and transitional issues must be considered under the applicable law for the relevant period.
5. Qualifying company versus tonnage tax company
A qualifying company meets the statutory eligibility definition. A tonnage tax company is a qualifying company for which a valid tonnage tax option is in force. The scheme involves a prescribed application and continuing compliance obligations; eligibility does not, on its own, confer an automatic election.
Section 231 of the 2025 Act sets out the option procedure, while Section 232 deals with ongoing conditions. A company should examine its incorporation documents, vessel ownership, board decision-making arrangements, relevant certificates and scheme approvals.
6. Practical examples
Example A: An Indian company whose strategic decisions are made in India, whose main object is ship operation and which owns a qualifying ship may meet the four qualifying-company conditions. Its tonnage tax status still depends on a valid election and other requirements.
Example B: An Indian shipping operator that charters vessels but owns no qualifying ship does not satisfy the ownership condition in Section 115VC, even if it otherwise operates ships.
7. Frequently asked questions
Is an Indian shipping company automatically a qualifying company?
No. All four statutory conditions must be met.
Can a company that only charters ships qualify?
Not under the qualifying-company definition unless it also owns at least one qualifying ship.
Does being a qualifying company automatically provide tonnage tax treatment?
No. A valid option and the applicable scheme conditions are also necessary.
8. Official statutory references
- Income Tax Department - Section 115VC, Income-tax Act, 1961
- Income Tax Department - Income-tax Act, 2025, as amended by Finance Act, 2026 (PDF)
- Income Tax Department - Section 226, tonnage tax scheme
This article is a general statutory guide. Eligibility and tax treatment depend on the law applicable to the relevant tax year and the company's facts.