Section 115VG: Computation of Tonnage Income
Section 115VG of the Income-tax Act, 1961 prescribed how a tonnage tax company calculates deemed taxable income from qualifying ships. For tax years starting on or after 1 April 2026, the corresponding framework is in Section 227 of the Income-tax Act, 2025.
What is tonnage income?
Tonnage income is a statutory amount based on a qualifying vessel's net tonnage and the number of qualifying operating days. It is not the shipping company's actual freight revenue, accounting profit or cargo weight. Under the tonnage tax scheme, the prescribed deemed income replaces the relevant shipping income for the purposes of computation, subject to the scheme's eligibility and other conditions.
Section 115VG: Explanation of each subsection
Subsection (1): Aggregate income from all qualifying ships
The tonnage income of a tonnage tax company for a previous year is the sum of the separately calculated tonnage incomes of all its qualifying ships.
Subsection (2): Daily income multiplied by operating days
For each qualifying ship, multiply the prescribed daily tonnage income by the number of days it operated as a qualifying ship during the previous year. If the ship qualifies for only part of that year, count only the relevant qualifying days.
Subsection (3): Daily tonnage income rate table
The following statutory slabs reproduce the rates under Section 115VG of the 1961 Act. The amounts are daily deemed income, not tax rates.
| Net tonnage of qualifying ship | Daily tonnage income |
|---|---|
| Up to 1,000 net tons | Rs. 70 per 100 net tons |
| Over 1,000 and up to 10,000 | Rs. 700 plus Rs. 53 for every 100 net tons above 1,000 |
| Over 10,000 and up to 25,000 | Rs. 5,470 plus Rs. 42 for every 100 net tons above 10,000 |
| Over 25,000 | Rs. 11,770 plus Rs. 29 for every 100 net tons above 25,000 |
The table in the 1961 Act was substituted by the Finance Act, 2012 with effect from 1 April 2013. For tax year 2026-27 onwards, consult Section 227 of the 2025 Act, as amended, rather than assuming that every historic rate or vessel category remains unchanged.
Subsection (4): Certified and deemed tonnage
Net tonnage is determined from the certificate referred to in Section 115VX and includes prescribed deemed tonnage for arrangements such as purchase of slots, slot charter and sharing of break-bulk vessels. Under the 2025 framework, Section 227 and Rule 146 of the Income-tax Rules, 2026 address the relevant calculation.
Subsection (5): Rounding to the nearest 100 net tons
Ignore fractional kilogram quantities and round tonnage to the nearest 100 tons: a remainder of 50 tons or more is rounded upwards, and a remainder below 50 tons is rounded downwards. For example, 12,449 net tons becomes 12,400, while 12,450 becomes 12,500.
Subsection (6): No deduction or set-off in tonnage income computation
No deduction or set-off is permitted while computing tonnage income under the special scheme. The separate treatment of other businesses and other applicable statutory provisions must still be considered.
Worked example of tonnage income calculation
Assume a qualifying ship has a certified net tonnage of 12,450 and is operated as a qualifying ship for 200 days under the 1961 Act:
- Rounded net tonnage = 12,500.
- Excess above 10,000 = 2,500 tons, or 25 units of 100 tons.
- Daily tonnage income = Rs. 5,470 + (25 × Rs. 42) = Rs. 6,520.
- Tonnage income for 200 days = Rs. 6,520 × 200 = Rs. 13,04,000.
This is an illustration of deemed income under the 1961 Act, not the amount of income tax payable. Actual liability depends on the applicable tax provisions and circumstances.
Rules under the Income-tax Act, 2025
Section 227 is the corresponding computation provision for the new law, including rules relating to ships and qualifying inland vessels where applicable. Rule 146 of the Income-tax Rules, 2026 sets out deemed tonnage methods, including 2.5 TEU per one net tonnage for purchase of slots and slot charter arrangements, and separate volume or weight bases for break-bulk vessel sharing. Review the current legislation and rules for the precise vessel category and period.
Important related provisions
- Section 115VA: Option to compute profits from qualifying shipping operations under the special chapter.
- Section 115VC: Conditions for a qualifying company.
- Section 115VD: Meaning of a qualifying ship.
- Section 115VE: Separate computation of tonnage tax business.
- Section 115VF: Treatment of tonnage income as deemed business profits.
- Section 115VI: Relevant shipping income.
- Section 115VP: Option for tonnage tax scheme.
- Section 115VX: Tonnage certificate.
Frequently asked questions
Is tonnage income based on actual shipping profits?
No. It is deemed income calculated using statutory tonnage rates and qualifying operating days.
Does the scheme apply automatically to all shipping companies?
No. The company must meet the statutory eligibility criteria and validly opt for the scheme.
Can a company claim ordinary deductions against tonnage income?
Section 115VG(6) prohibits deductions and set-offs in computing tonnage income under the 1961 Act. The corresponding current-year provisions must also be reviewed.
Official statutory sources
- Income Tax Department - Section 115VG
- Income-tax Act, 1961 as amended by Finance Act, 2025
- Income Tax Department - Transition to Income-tax Act, 2025
- Income-tax Rules, 2026 - Official notification
Last reviewed: 27 October 2026. This article is general legal and tax information; verify statutory amendments, notifications and eligibility for the applicable tax year.