Section 115VP: Method and Time of Opting for the Tonnage Tax Scheme

Section 115VP of the Income-tax Act, 1961 sets out how a qualifying shipping company opts for the tonnage tax scheme, the deadline for applying, the tax authority's approval process and the year from which the approved option operates.

What is the tonnage tax scheme?

The tonnage tax scheme is a special method for taxing eligible shipping companies by reference to the net tonnage and operating days of qualifying ships, instead of calculating taxable profits solely from their ordinary accounting results. A qualifying company must meet the conditions governing the tonnage tax regime, including those set out in Section 115VC of the 1961 Act. The scheme applies to qualifying ships and qualifying shipping activities; it does not automatically cover every activity carried on by a shipping company.

Section 115VP: explanation of each subsection

Subsection (1): Application to opt for tonnage tax

A qualifying company may exercise its option by applying to the Joint Commissioner having jurisdiction in the prescribed form and manner. The application is not merely a declaration: the tax authority examines whether the applicant meets the statutory conditions. Under the rules historically made for the 1961 Act, Form No. 65 was prescribed for the option; companies should verify the current filing procedure and applicable statutory regime before submitting an application.

Subsection (2): Time limit for applying

The original statutory initial application window for existing qualifying companies ran after 30 September 2004 and before 1 January 2005. That was a one-time historical window, not a recurring annual deadline.

The proviso permits a company incorporated after that initial period, or a pre-existing company that first becomes a qualifying company after that period, to apply within three months of incorporation or of first becoming a qualifying company, as applicable. The date on which eligibility first arose should be supported by documentary records.

Subsection (3): Examination and decision

On receiving an application, the Joint Commissioner may request information and documents needed to establish eligibility. After considering the materials, the authority must issue a written order either approving the option or refusing approval. A refusal cannot be made without first providing the applicant a reasonable opportunity of being heard. A copy of the order must be sent to the applicant.

Subsection (4): Deadline for the order

An order approving or refusing the option must be passed within one month from the end of the month in which the application was received. This deadline is measured from the end of the receipt month, not simply 30 days from submission.

Subsection (5): When approval takes effect

Where approval is granted, the tonnage tax provisions apply from the assessment year relevant to the previous year in which the option is exercised, subject to the governing law for the relevant period. Approval does not mean that every other income stream of the company becomes tonnage income.

Practical example: application and approval timeline

Suppose a company first becomes a qualifying company on 10 June 2025. Under the historical three-month rule in Section 115VP(2), the application would ordinarily need to be made within three months of that date. If an application is received on 15 July 2025, Section 115VP(4) requires the written approval or refusal order before the expiry of 31 August 2025. The precise filing deadline and eligibility date must be established from the applicable facts and law; the example does not replace a date-specific compliance review.

Records to prepare before applying

• Certificate of incorporation and details of the company's Indian management and registration.
• Documents establishing when the company first satisfied the qualifying-company conditions.
• Details of qualifying ships, ownership or charter arrangements, tonnage certificates and shipping activities.
• Financial records and supporting evidence requested by the jurisdictional tax authority.
• Completed prescribed application form and evidence of timely submission.

Related statutory provisions

Section 115VQ deals with the duration of the option; Section 115VR addresses renewal; and Section 115VS provides restrictions in certain cases. These provisions should be read together with Section 115VP.

Frequently asked questions

Can a newly qualifying shipping company apply for tonnage tax?

Under Section 115VP(2) of the 1961 Act, a company first becoming qualifying after the original initial period may apply within three months of becoming eligible, subject to the law applicable to the period concerned.

Can the Joint Commissioner reject the application without a hearing?

No. Section 115VP(3) requires a reasonable opportunity of being heard before a refusal order is passed.

How quickly must the authority decide?

Section 115VP(4) requires an order within one month from the end of the month in which the application was received.

Is the 2004 application window still open?

No. The 2004 window was a historical initial period. Later applications must satisfy the separate statutory conditions and deadlines applicable to the applicant.

Official legislation and guidance

For the authoritative legal text and any amendments, consult the Income Tax Department's Income-tax Act resources, the Income Tax e-Filing portal and the India Code legislation database. Confirm the relevant assessment year, rules and forms before acting.

Updated: 27 October 2026. This article is general legal information, not an individualized tax opinion.