Income Tax Law / Shipping Companies

Section 115VD - Qualifying Ship under the Income-tax Act

A qualifying ship is a vessel that satisfies statutory conditions for India's tonnage tax scheme. The rules address vessel tonnage, registration, valid certification and specified exclusions.

Law update: Section 115VD belongs to the Income-tax Act, 1961. From 1 April 2026, the corresponding definition is in Section 235(i) of the Income-tax Act, 2025. The updated definition expressly covers eligible inland vessels, subject to statutory conditions.

1. Meaning and legal basis

Under Chapter XII-G of the Income-tax Act, 1961, Section 115VD defined a qualifying ship for the special tax provisions applicable to shipping companies. Section 115V supplied related definitions; Sections 115VA to 115VG addressed the tonnage tax mechanism. The newer Income-tax Act, 2025 places the qualifying-ship definition in Section 235(i), with the scheme addressed in Sections 225 to 227.

2. Conditions for a qualifying ship

For the relevant provisions, the ship or inland vessel must satisfy all three principal requirements:

Minimum size: it must be a seagoing ship or vessel, or an eligible inland vessel, with net tonnage of at least 15.
Registration or licensing: it must satisfy the applicable registration requirement. The statutory wording refers to ships registered under the Merchant Shipping Act, 1958, foreign-registered ships licensed by the Director-General of Shipping under the cited provisions, and inland vessels registered under the Inland Vessels Act, 2021.
Valid tonnage certificate: a certificate showing the vessel's net tonnage must be in force.

Net tonnage is a statutory vessel measurement, not the weight of cargo carried. A valid tonnage certificate is therefore essential evidence when checking eligibility.

3. Ships and vessels expressly excluded

Even where the general conditions are met, Section 235(i) excludes the following categories:

Ships or inland vessels primarily used to provide goods or services ordinarily supplied on land.
Fishing vessels.
Factory ships, including vessels processing fishing produce.
Pleasure craft mainly used for sport or recreation.
Harbour and river ferries.
Offshore installations.
A qualifying ship used as a fishing vessel for more than 30 days during a tax year.

Historical amendment: the former exclusion of dredgers in Section 115VD(vii) was omitted with effect from 1 April 2006. This does not automatically make every dredger eligible; the remaining requirements and exclusions still apply.

4. Important statutory definitions

Seagoing ship

Under Section 235(j) of the Income-tax Act, 2025, a seagoing ship is a ship certified as such by the competent authority of any country.

Inland vessel

Section 235(f) adopts the meaning of inland vessel from Section 3(q) of the Inland Vessels Act, 2021. Its inclusion in the tonnage tax definition does not remove the need for registration and a valid net tonnage certificate.

Qualifying company

Section 235(h) generally requires an Indian company, effective management in India, ownership of at least one qualifying ship and a principal object of operating ships. Vessel eligibility alone does not entitle a company to use the scheme.

5. Effect on tonnage tax

Under Section 225, a company may opt for the special method of computing income from operating qualifying ships. Section 226 sets out the tonnage tax scheme, and Section 227 governs computation of tonnage income. The election and other conditions must be fulfilled; the scheme is not automatic merely because a ship qualifies.

6. Maritime law and registration updates

The Merchant Shipping Act, 2025 has replaced the earlier maritime law framework. However, the published wording of Section 235(i) continues to refer to the Merchant Shipping Act, 1958 and its specified licensing sections. Registration and licensing should therefore be examined together with the applicable replacement, repeal, savings and transitional provisions rather than assuming that every historical cross-reference has been renumbered.

The Directorate General of Shipping publishes the Merchant Shipping Act, 2025 and associated rules, including registration and tonnage measurement rules.

7. Practical eligibility examples

Commercial cargo ship: a seagoing cargo vessel with 500 net tonnage, compliant registration and a valid certificate may meet the vessel-level conditions, subject to exclusions.
Small vessel: a vessel with net tonnage of 12 fails the minimum 15-net-tonnage requirement.
Fishing vessel: a fishing vessel remains excluded despite adequate tonnage and registration.
Inland cargo vessel: an inland vessel registered under the Inland Vessels Act, 2021, with at least 15 net tonnage and valid certification may qualify if no exclusion applies.

8. Frequently asked questions

Is every registered commercial ship a qualifying ship?

No. The minimum net tonnage, valid certification and exclusion tests must also be met.

Can an inland vessel qualify?

Yes. Section 235(i) of the Income-tax Act, 2025 includes eligible inland vessels registered under the Inland Vessels Act, 2021.

Are dredgers automatically excluded?

No. The express exclusion of dredgers was omitted from the earlier provision in 2006, but other statutory tests continue to apply.

Does a qualifying ship automatically make the company eligible for tonnage tax?

No. The company must satisfy the qualifying-company rules and the election and operational conditions under the tonnage tax scheme.

9. Official legal references

Updated: 27 October 2026. This article explains the statutory framework; specific vessels and charter arrangements require a fact-based legal and tax assessment.