Income Tax Law / Tonnage Tax Scheme
Section 115VO: Exclusion of Tonnage Tax Income from MAT Book Profit
Section 115VO of the Income-tax Act, 1961 explains how the book profit or loss from specified tonnage tax activities is excluded when calculating Minimum Alternate Tax (MAT) under Section 115JB.
Reviewed: 27 October 2026 | India
What is Section 115VO?
Section 115VO is a special adjustment provision for a company taxed under the tonnage tax scheme in Chapter XII-G of the Income-tax Act, 1961. It requires specified shipping-related book profit or book loss to be left out of the company's book profit for the purposes of Section 115JB, the Minimum Alternate Tax provision.
The tonnage tax scheme taxes qualifying shipping business using a prescribed tonnage-based computation rather than its ordinary accounting profit. Section 115VO prevents the specified book result of that business from being brought back into the MAT book-profit base merely because it appears in the company's financial statements.
Section 115VO: statutory rule explained
The book profit or loss derived from the activities of a tonnage tax company referred to in sub-section (1) of Section 115V-I shall be excluded from the book profit of the company for the purposes of Section 115JB.
Explanation: This provision excludes both a positive book profit and a negative book result attributable to the activities covered by Section 115V-I(1). It does not, by itself, exclude unrelated business profits from the MAT computation.
Section 115JB: Under the 1961 Act, the MAT mechanism generally begins with book profit determined from the company's accounts and applies the statutory adjustments specified in that section. Section 115VO provides a further special exclusion for the covered tonnage tax activities.
Which shipping activities are covered?
The cross-reference to Section 115V-I(1) (relevant shipping income) is central. It concerns profits from core shipping activities and prescribed incidental activities, subject to the limits and conditions in that provision.
| Category | MAT treatment under Section 115VO |
|---|---|
| Book profit from covered tonnage tax shipping activities | Excluded from book profit for Section 115JB purposes. |
| Book loss from covered tonnage tax shipping activities | Excluded as well; it should not reduce the remaining MAT book-profit base. |
| Profit from non-qualifying ships or unrelated business | Not automatically excluded; apply the ordinary statutory MAT rules. |
| Capital gains or other income outside Section 115V-I(1) | Review their independent tax and MAT treatment; do not assume Section 115VO applies. |
Whether a particular receipt is covered depends on its legal classification under Chapter XII-G, not merely on whether it is recorded in the shipping division's accounts.
Illustration: adjusting MAT book profit
Assume a tonnage tax company reports the following accounting results, solely for illustration:
| Item | Amount |
|---|---|
| Book profit from qualifying tonnage tax activities | Rs. 80 lakh |
| Book profit from other business | Rs. 30 lakh |
| Combined accounting profit before other statutory MAT adjustments | Rs. 110 lakh |
| Less: shipping book profit excluded under Section 115VO | Rs. 80 lakh |
| Illustrative remaining base | Rs. 30 lakh |
The Rs. 30 lakh figure is not necessarily the final MAT book profit. Any other adjustments prescribed under Section 115JB must still be considered. If the covered shipping activity instead records a book loss, that loss must likewise be excluded rather than used to reduce the MAT base for other activities.
Accounting and compliance considerations
- Maintain reliable segment-wise accounts for tonnage tax activities and other businesses.
- Reconcile book profit or loss from activities within Section 115V-I(1) to the financial statements.
- Identify receipts from non-qualifying ships and non-shipping operations separately.
- Document the basis for allocating common expenses and shared assets; see Section 115VJ.
- Apply the appropriate tax-year legislation and check current MAT provisions, rules, forms and judicial interpretations before filing.
Related rules on depreciation and deductions under the former regime appear in Section 115VK and Section 115VL.
Frequently asked questions
Does Section 115VO exempt all income of a shipping company from MAT?
No. Its exclusion is limited to the book profit or loss from activities referred to in Section 115V-I(1). Other activities require separate analysis.
Does the provision cover a shipping book loss?
Yes. The statutory wording expressly covers both book profit and book loss.
Is tonnage income the same as book profit?
No. Tonnage income is computed using the special tonnage tax rules; book profit is an accounting-based measure adjusted under the applicable MAT provisions.
Does the Income-tax Act, 2025 affect the analysis?
Yes. For tax years governed by the 2025 Act, use its operative provisions and transition rules. The 1961 Act's Section 115VO is retained here as a historical statutory reference.
Official legislation and references
Consult the official Income Tax Department and India Code for the applicable consolidated statutory text, notifications and amendments. The official Income Tax e-Filing Portal provides current filing information.
Related provisions under the 1961 Act: Section 115V-I, Section 115VN, and Section 115JB (Minimum Alternate Tax).
This article is general legal information. The applicable treatment depends on the tax year, facts and statutory amendments.