Section 115VH: Calculation of Tonnage Income in Joint Ship Operations
Section 115VH of the Income-tax Act, 1961 explains how tonnage income is attributed when two or more companies operate the same qualifying ship. The rule distinguishes arrangements with definite, ascertainable shares from other cases of multiple operators.
Meaning and scope of Section 115VH
The provision forms part of Chapter XII-G of the Income-tax Act, 1961, which provides the tonnage tax regime for eligible shipping companies. It addresses the allocation of deemed income in a joint operation; it does not, by itself, establish that a company or vessel qualifies for the scheme.
Section 115VH(1): Joint interest or agreement with definite shares
Where a qualifying ship is operated by two or more companies through either a joint interest in the ship or an agreement for its use, and the companies' respective shares are definite and ascertainable, the tonnage income attributable to each company is proportionate to its share of that interest.
Company's tonnage income = Ship's tonnage income × Company's ascertainable share
The allocation follows the relevant joint interest or agreement. The companies should retain documentary evidence of their shares and the period for which the arrangement applied.
Section 115VH(2): Multiple operators without an ascertainable share
Subject to subsection (1), where two or more companies are operators of a qualifying ship, the tonnage income of each company is computed as if that company were the only operator. This is not a general direction to divide the income equally. The proportional rule takes priority when its conditions are met.
Illustrative example of joint operation
Assume the tonnage income calculated for a qualifying ship for the relevant operating period is Rs. 12,00,000, and a documented joint-operation agreement establishes Company A's share at 60% and Company B's share at 40%.
| Company | Definite share | Illustrative tonnage income |
|---|---|---|
| Company A | 60% | Rs. 7,20,000 |
| Company B | 40% | Rs. 4,80,000 |
| Total | 100% | Rs. 12,00,000 |
The example illustrates allocation only. The ship's tonnage income must first be computed using the statutory daily tonnage rates, net tonnage and qualifying operating days under the applicable law.
Key legal terms and related provisions
Qualifying ship
A vessel meeting the statutory conditions for the tonnage tax scheme. Under the 1961 Act, see Section 115VD. A vessel that fails those conditions does not become qualifying merely because it is jointly operated.
Operating a ship
The nature of an operator's relationship with the vessel is addressed by Section 115VB, including relevant ownership and charter arrangements.
Tonnage income
The statutory amount deemed to be taxable business income under the tonnage tax scheme. Read Section 115VF with Section 115VG for the calculation methodology.
Joint interest and ascertainable share
A joint interest or agreement for use of a ship must permit each operator's share to be identified with certainty for the proportional rule to apply. Contractual percentages, operating arrangements and supporting records are relevant evidence.
Corresponding provision under the Income-tax Act, 2025
| Income-tax Act, 1961 | Income-tax Act, 2025 | Subject |
|---|---|---|
| Section 115VH(1) | Section 227(7) | Proportionate allocation where definite shares exist |
| Section 115VH(2) | Section 227(8) | Separate computation for multiple operators, subject to the proportional rule |
| Section 115VG | Section 227(1) to (6) | Calculation of tonnage income |
The 2025 Act consolidates the earlier rules on tonnage-income calculation and joint operation in Section 227. Applicable eligibility, election, certification and record-keeping conditions should be checked for the relevant tax year.
Practical compliance checklist
- Confirm that the company and ship satisfy the tonnage tax scheme requirements and that the relevant election is valid.
- Identify all operators and preserve the joint ownership or ship-use agreement.
- Verify whether each company's share is definite and ascertainable.
- Compute the qualifying ship's statutory tonnage income for the correct operating days.
- Apply the proportional allocation under subsection (1), or the separate-operator rule under subsection (2), as applicable.
- Maintain consistent tax records, certificates and contractual supporting documents.
Frequently asked questions
How is tonnage income divided when companies jointly operate a ship?
Where the qualifying ship is operated through a joint interest or use agreement and each company's share is definite and ascertainable, the tonnage income is allocated in proportion to those shares.
What if two companies operate the same ship without definite shares?
Subject to the proportional-share rule, each operator computes tonnage income as if it alone operated the qualifying ship.
What provision applies from tax year 2026-27?
Section 227(7) and 227(8) of the Income-tax Act, 2025 contain the corresponding rules for joint operation.
Is the calculation based on actual freight revenue?
No. Under the tonnage tax scheme, deemed tonnage income is calculated using statutory tonnage and operating-day rules, rather than ordinary freight profit, subject to the applicable conditions.
Official legislation and references
- Income Tax Department - Income-tax Act, 1961 (as amended by Finance Act, 2025)
- Income Tax Department - Income-tax Act, 2025 (Section 227)
- Income Tax Department - Section correspondence navigator
Updated: 27 October 2026. This article explains the statutory provisions generally; the facts of each shipping arrangement and the relevant tax year determine the applicable treatment.