Section 115VL of the Income-tax Act, 1961: Exclusion of Deductions and Set-Off under the Tonnage Tax Scheme

What does Section 115VL provide?

Section 115VL is a non-obstante provision in Chapter XII-G of the Income-tax Act, 1961. For a previous year during which a company is chargeable to tax under the tonnage tax scheme, it overrides inconsistent general provisions when calculating tonnage income. Rather than taxing the actual net operating profit of qualifying ships, the scheme generally uses a statutory tonnage-based computation under Section 115VG.

The section contains four connected rules. Ordinary business expenses and depreciation are treated as already accounted for; specified shipping losses cannot be used again; Chapter VI-A deductions do not reduce qualifying shipping profits; and written down values continue to be adjusted for depreciation even though no separate depreciation deduction reduces tonnage income.

Important date distinction: Section 115VL is a provision of the Income-tax Act, 1961. The Income-tax Act, 2025 applies from 1 April 2026, subject to its transitional and savings provisions. For tax years governed by the 2025 Act, the operative corresponding provisions and applicable rules should be consulted instead of treating Section 115VL as the current charging provision. This page retains the original section reference to explain its historical operation and continuing relevance to earlier years.

Section 115VL explained clause by clause

Clause (i): Sections 30 to 43B treated as fully given effect

Sections 30 to 43B of the 1961 Act contain rules governing business expenditure, allowances, depreciation and related adjustments. For every previous year falling under the tonnage tax scheme, Section 115VL(i) requires those losses, allowances and deductions relating to that year to be treated as though full effect had already been given to them in that same year.

Consequently, a company cannot accumulate ordinary business deductions relating to its qualifying shipping operations merely because those amounts were not separately deducted from the statutory tonnage income.

Clause (ii): Restriction on carry-forward and set-off of losses

The provision disallows the carry-forward or set-off of losses arising from the business of operating qualifying ships for years when the company is under the tonnage tax scheme, insofar as they fall within the specified provisions: Section 70(1) and (3), Section 71(1) and (2), Section 72(1), and Section 72A(1) of the 1961 Act.

This restriction is specifically linked to the qualifying-ship business and the relevant tonnage tax years. It should not be read as a blanket cancellation of every loss from every other business of the company. The separate rules for pre-option losses and other activities must also be considered, including Section 115VM.

Clause (iii): No Chapter VI-A deduction for qualifying shipping profits

Chapter VI-A of the 1961 Act provides deductions from gross total income, subject to the conditions of individual provisions. Under Section 115VL(iii), no such deduction is allowed in relation to the profits and gains from the business of operating qualifying ships. This does not, by itself, determine eligibility for a deduction relating to a genuinely separate business or income source.

Clause (iv): Depreciation is deemed to have been allowed

When computing depreciation under Section 32 of the 1961 Act, the written down value (WDV) of an asset used in the tonnage tax business is calculated as if the company had claimed depreciation and that depreciation had actually been allowed for each relevant previous year. Thus the asset's tax WDV is not frozen simply because tonnage income is calculated without a separate depreciation deduction.

For the special division of qualifying and other shipping asset blocks, refer to Section 115VK: Depreciation. The common-cost allocation rules are discussed in Section 115VJ.

Illustrative example: Deemed depreciation and loss treatment

The amounts are examples only. Actual tonnage income depends on ship tonnage, qualifying days and applicable statutory provisions. Depreciation rates, block adjustments and other facts can alter the WDV computation.

Relationship with other tonnage tax provisions

Section 115VE addresses computation under the scheme; Section 115VF explains tonnage income; Section 115VG sets out the daily-tonnage formula; and Section 115VI distinguishes relevant shipping income from income taxed under ordinary rules.

Section 115VL should be read together with Section 115VM (Exclusion of loss), Section 115VN (Chargeable gains) and Section 115VO (MAT exclusion), as relevant to the tax year.

Frequently asked questions

Can a tonnage tax company deduct its actual ship operating expenses from tonnage income?

No separate reduction is available merely for ordinary expenses of the qualifying-ship business. The special tonnage-based computation and Section 115VL's deeming rules govern those amounts for the years to which the 1961 Act applies.

Can a loss from a qualifying ship be set off against another business?

Section 115VL(ii) restricts the specified set-off and carry-forward of losses relating to qualifying-ship operations for tonnage tax years. Losses of other businesses require a separate examination under the applicable law.

Does depreciation stop being recorded for tax purposes?

No. Section 115VL(iv) requires the tax WDV to be computed as if the relevant depreciation had been claimed and allowed, notwithstanding the special method of taxing tonnage income.

Does Section 115VL govern income earned after 1 April 2026?

For periods governed by the Income-tax Act, 2025, consult that Act and the applicable transitional provisions. Section 115VL remains useful when interpreting assessments and tax years governed by the 1961 Act.

Official legislation and further reading

• Income Tax Department: Income-tax Act, 1961 - official legislation portal.
• Income Tax Department - statutory updates, rules and official guidance.
• India Code - central legislation and enacted texts, including the Income-tax Act, 2025.

This article provides general legal information. For a particular assessment, check the legislation and notifications applicable to that tax year.