Section 115VJ: Treatment of Common Costs under the Tonnage Tax Scheme
Section 115VJ of the Income-tax Act, 1961 addresses how a tonnage tax company must deal with shared expenditure and depreciation when it carries on shipping activities covered by the tonnage tax scheme alongside other businesses.
Reviewed: 27 October 2026 | Historical provision and current-law context
What is the treatment of common costs?
A tonnage tax company is a company covered by the statutory tonnage tax scheme for qualifying shipping operations. The scheme computes eligible shipping income under special rules rather than simply using the commercial profit shown in the accounts. A company may also undertake other activities outside that scheme.
Common costs are expenses incurred for the benefit of both the tonnage tax business and another business or activity. Examples can include shared office rent, head-office administration, information technology systems, payroll administration and insurance for shared facilities. Costs that relate exclusively to one business should ordinarily be identified directly with that business instead of being arbitrarily apportioned.
Section 115VJ distinguishes between allocating general common costs and allocating depreciation on an asset used by more than one business. These rules help maintain a proper separation between tonnage tax activities and other taxable operations.
Section 115VJ(1): Reasonable allocation of common costs
Where a tonnage tax company also carries on any business or activity other than its tonnage tax business, common costs attributable to the tonnage tax business must be determined on a reasonable basis.
The provision does not impose one universal allocation formula. The basis should reflect the actual benefit or use of the shared resource, supported by consistent records. Depending on the expenditure, a suitable measure may be floor space, employee time, usage logs, headcount or another rational allocation key.
For example, rent for an office shared by shipping administration and an unrelated trading division might be allocated by the space occupied, while a shared accounting team's costs may be allocated by documented time spent on each activity.
Importantly, identifying the share attributable to tonnage tax business does not mean that the company may deduct that share again from the statutory tonnage income. The separate tonnage tax computation and the rules excluding deductions must still be respected.
Section 115VJ(2): Depreciation on assets used by both businesses
Where an asset other than a qualifying ship is not used exclusively for the tonnage tax business, depreciation on that asset must be allocated between the tonnage tax business and the other business in a fair proportion.
Under the wording of Section 115VJ(2), the Assessing Officer determines that fair proportion having regard to the extent to which the asset is used for the tonnage tax business and for the other business. Relevant evidence may include usage records, equipment logs, floor-space allocation and other objective measures.
Practical example: Allocation of shared office expenses
Assume a company operates qualifying ships under the tonnage tax scheme and also runs a separate logistics consultancy. Its shared head-office expenditure for a year is Rs. 20,00,000. Reliable time and occupancy records show that 60% relates to the tonnage tax business and 40% to consultancy operations.
| Particulars | Basis | Allocated cost |
|---|---|---|
| Total shared head-office expenses | 100% | Rs. 20,00,000 |
| Tonnage tax business | 60% | Rs. 12,00,000 |
| Other business | 40% | Rs. 8,00,000 |
This is an illustrative allocation, not a statutory percentage. The actual allocation must follow a reasonable, fact-supported basis. Any deduction in the other business remains subject to the applicable income-tax provisions, and the amount attributed to tonnage tax operations is not separately deducted from deemed tonnage income.
Example: Depreciation on shared equipment
Suppose depreciation otherwise determined for a shared computer system is Rs. 3,00,000 and records indicate that 70% of its use relates to shipping operations and 30% to another business. An indicative allocation would be Rs. 2,10,000 and Rs. 90,000 respectively, subject to the Assessing Officer's fair-proportion determination under Section 115VJ(2). This is not a substitute for the statutory depreciation calculation.
Records and compliance considerations
- Separate business accounts: Maintain identifiable records for the tonnage tax business and activities outside the scheme.
- Direct attribution: Charge costs that are exclusively associated with a particular business to that business.
- Reasonable allocation keys: Document the method used for costs benefiting more than one activity and explain why it reflects actual use.
- Shared assets: Preserve depreciation schedules, asset registers and usage evidence to support the allocation.
- Consistency: Apply the selected method consistently unless there is a justified change in business circumstances.
- Current-law verification: For years governed by the Income-tax Act, 2025, check the corresponding operative provisions, rules and notifications.
These records are practical compliance measures; the precise evidence required depends on the company's facts and the applicable statutory and procedural requirements.
Frequently asked questions
Does Section 115VJ allow deduction of common costs from tonnage income?
No separate deduction from the statutory tonnage income follows merely because a common cost is allocated to the tonnage tax business. The scheme has special computation and deduction rules. Section 115VJ addresses attribution of shared costs between activities.
Is there a fixed percentage for apportioning common costs?
No. Section 115VJ(1) requires a reasonable basis; the proper method depends on the nature of the cost and the company's circumstances.
Who determines the proportion of depreciation on shared assets?
Under Section 115VJ(2), the Assessing Officer determines a fair proportion having regard to how the asset is used by the tonnage tax business and the other business.
Does the shared-asset rule apply to qualifying ships?
No. Subsection (2) expressly applies to assets other than qualifying ships.
Does Section 115VJ continue to govern all tax years after April 2026?
No. The Income-tax Act, 2025 took effect from 1 April 2026. The operative law must be identified by the relevant tax year and transitional provisions.
Official legislation and related provisions
Consult the official Income Tax Department website and the India Code legislation repository for the applicable text of the Income-tax Act, 1961, the Income-tax Act, 2025 and amendments. For the surrounding 1961 Act framework, see Section 115VI (relevant shipping income), Section 115VK (depreciation), and Section 115VL (deduction and set-off exclusions).
This article is general legal information and does not replace a review of the legislation applicable to a particular tax year or professional advice based on the facts.