Section 115VS of the Income-tax Act, 1961: Prohibition on Opting for the Tonnage Tax Scheme

What is Section 115VS?

Section 115VS, in Chapter XII-G of the Income-tax Act, 1961, is titled Prohibition to opt for tonnage tax scheme in certain cases. It prevents a qualifying company from opting for the scheme again for ten years when specified events occur. The tonnage tax scheme is a special method of taxing income from operating qualifying ships, based on statutory tonnage income rather than ordinary actual business profits.

The prohibition applies even where the company would otherwise satisfy the requirements for being a qualifying company. It is distinct from the ordinary expiry of an approved option and should be considered alongside the renewal rules.

Legislative transition: The Income-tax Act, 2025 took effect on 1 April 2026, subject to savings and transitional provisions. Section 115VS is the provision of the 1961 Act and remains relevant to periods and proceedings governed by that Act. For tax years governed by the 2025 Act, verify the operative corresponding provisions and current rules; this article does not assume that historical section numbering continues unchanged.

When does the ten-year prohibition apply?

The text of Section 115VS identifies three categories of events. Each can trigger a ten-year period during which a qualifying company cannot opt for the tonnage tax scheme.

1. Voluntary opting out of the scheme

A company that opts out on its own is subject to the re-entry restriction. This should be read with Section 115VQ, which addresses the duration and cessation of the option, including a written declaration by the company that the special scheme should no longer apply.

2. Default under Sections 115VT, 115VU or 115VV

Section 115VS expressly refers to default in complying with any of these provisions:

• Section 115VT: the statutory requirement concerning transfer to the tonnage tax reserve account.
• Section 115VU: the statutory requirement concerning utilisation of amounts credited to that reserve.
• Section 115VV: the statutory requirement concerning the minimum training commitment.

The nature of an alleged default, applicable exceptions and the relevant assessment year must be assessed under the full text of the law and related rules.

3. Exclusion by order under Section 115VZC(1)

A company whose tonnage tax option is excluded pursuant to an order under Section 115VZC(1) is also barred from opting again for ten years. This is a separate trigger from voluntary withdrawal or a default under the three provisions above. Review the grounds, procedure and effect of the actual exclusion order before calculating the prohibition period.

How is the ten-year restriction calculated?

The statutory period runs for ten years from the date of opting out, the relevant default or the exclusion order, as applicable. The starting event therefore matters: it is not necessarily the date of the original tonnage tax approval or the end of the company's normal ten-year option.

A company should maintain the withdrawal declaration, relevant compliance records, correspondence and any exclusion order to identify the legally operative date. Where several events or disputed dates exist, the particular facts and applicable legal provisions require examination.

Difference between expiry, renewal and prohibition

Ordinary expiry and eligibility for renewal should not be confused with a disqualification triggered under Section 115VS.

Illustrative example of the prohibition period

Assume a qualifying shipping company voluntarily opts out of the tonnage tax scheme on 15 July 2024. Under Section 115VS of the 1961 Act, a ten-year prohibition is measured from that opting-out date. The company should not treat itself as eligible to opt back into the scheme during the resulting ten-year period merely because it otherwise satisfies qualifying-company conditions.

If, instead, the relevant event is an exclusion order, the provision uses the date of that order as the reference point. The illustration does not resolve how the Income-tax Act, 2025 and its transitional rules may apply to a later fresh application.

Compliance considerations for shipping companies

• Confirm that the company remains a qualifying company and operates qualifying ships under the applicable statutory definitions.
• Document any voluntary exit and its effective date.
• Monitor tonnage tax reserve requirements under Sections 115VT and 115VU.
• Maintain records supporting the training commitment under Section 115VV.
• Review any exclusion proceedings or orders under Section 115VZC and the remedies available under the law.
• Check Section 115VR before seeking renewal, and separately determine whether Section 115VS bars a fresh option.

For background, read Section 115VP (option procedure), Section 115VQ (duration) and Section 115VR (renewal).

Frequently asked questions

Is the ten-year prohibition automatic after every tonnage tax option expires?

No. Section 115VS identifies particular events: voluntary opting out, specified compliance defaults and exclusion under Section 115VZC(1). Ordinary expiry is addressed separately in the duration and renewal provisions.

Can a company re-enter immediately after voluntarily withdrawing?

No. Section 115VS imposes a ten-year restriction measured from the date of opting out, subject to determining the law applicable to the relevant period.

Does every tax compliance default trigger Section 115VS?

No. The provision specifically names defaults under Sections 115VT, 115VU and 115VV. Other failures may have consequences under other provisions but should not automatically be described as a Section 115VS trigger.

What if the company is excluded by an order?

An exclusion order under Section 115VZC(1) is expressly listed as a trigger. The ten-year period is referenced to the date of the order, subject to any legally relevant challenge or subsequent determination.

Official law and reference materials

• Income Tax Department: Income-tax Act, 1961 - statutory provisions and historical reference.
• Income Tax Department - official legislation, rules, forms and notifications.
• India Code - central legislation, including the Income-tax Act, 2025.

This article is general information, not a substitute for checking the enacted text, relevant notifications and professional advice on a particular tax year.