Section 115VW: Maintenance and Audit of Accounts

Section 115VW of the Income-tax Act, 1961 lays down two essential accounting and reporting conditions for a shipping company that has elected the tonnage tax scheme: separate books for its qualifying-ship business and a duly signed and verified accountant's report in the prescribed form.

Meaning and purpose of Section 115VW

Under the tonnage tax regime, eligible income from operating qualifying ships is generally determined using statutory tonnage-based rules. Section 115VW ensures that the company's qualifying shipping activities remain separately identifiable and independently verifiable for tax reporting. It is a condition for the tonnage tax option to have effect for a particular previous year, not merely an optional bookkeeping recommendation.

Statutory requirements under Section 115VW

Clause (i): Maintain separate books of account

A tonnage tax company must maintain separate books of account for the business of operating qualifying ships. The records should allow the qualifying-ship business to be distinguished from any other business or income streams of the company.

Practical records may include voyage and charter documentation, ship registers, revenue ledgers, operating expenses, common-cost allocations, invoices, bank records and reconciliations. These are examples of useful supporting records, not an exhaustive list expressly prescribed by Section 115VW itself.

Clause (ii): Furnish the accountant's report

The company must furnish, along with its return of income for the relevant previous year, an accountant's report in the prescribed form, duly signed and verified by that accountant. The applicable form, manner of electronic filing and timing should be checked against the rules and filing instructions governing the relevant year.

The statutory reference to the income-tax return links this obligation to return filing; the separate-books requirement and the accountant's reporting requirement must both be satisfied.

Explanation: Who is an accountant?

For Section 115VW, the term "accountant" has the meaning assigned by the Explanation below Section 288(2) of the Income-tax Act, 1961. In broad terms, that provision addresses the professional qualification and applicable eligibility or disqualification requirements for accountants acting under the Act. The exact statutory definition should be consulted for the relevant assessment year.

What happens if Section 115VW is not complied with?

Section 115VW states that a company's tonnage tax option shall not have effect in relation to a previous year unless both conditions are met. Accordingly, failure to maintain separate qualifying-ship accounts or to furnish the prescribed accountant's report can prevent the company from applying the tonnage tax computation for that year.

This year-specific consequence should not be confused with an automatic ten-year disqualification or permanent exclusion. Other statutory provisions may have separate consequences depending on the nature of the default and the facts. Companies should seek advice before assuming that a late report, revised filing or subsequent correction necessarily cures an earlier failure.

Illustrative example

Practical compliance checklist

• Identify the ships and activities treated as qualifying under the applicable tonnage tax provisions.
• Maintain separate books and supporting documentation for qualifying-ship operations.
• Document how shared expenditure and income are allocated between shipping and other activities.
• Reconcile the separate shipping records with the company's financial statements and tax computations.
• Engage an accountant who satisfies the statutory definition and independence requirements.
• Confirm the prescribed audit report form and applicable electronic filing process for the relevant year.
• Retain evidence of submission, acknowledgements and supporting audit working papers.
• Check whether the Income-tax Act, 2025 and its rules govern the year being filed.

Related tonnage tax provisions

Section 115VW should be read alongside Section 115VT (tonnage tax reserve), Section 115VU (training requirement), Section 115VV (charter-in limits) and Section 115VX (determination of tonnage). Each addresses a different compliance aspect of the shipping tax scheme.

Frequently asked questions

Are separate books mandatory for tonnage tax companies?

Yes. Section 115VW(i) requires separate books for the business of operating qualifying ships as a condition for the option to have effect for the relevant previous year.

Is a statutory accountant's report also required?

Yes. Section 115VW(ii) requires a duly signed and verified report from an accountant in the prescribed form, furnished with the return of income as required under the applicable filing framework.

Can one set of books for all company operations satisfy Section 115VW?

The provision requires separate books in respect of the qualifying-ship business. A company should ensure its accounting system actually meets that requirement and not assume that undifferentiated consolidated records are sufficient.

Does non-compliance automatically cancel the tonnage tax option forever?

Section 115VW itself states that the option does not have effect for the relevant previous year if the conditions are not satisfied. Any further consequences must be determined from the other applicable provisions and the particular facts.

Official legislation and resources

Refer to the Income Tax Department's legislation portal, India Code and the Income Tax e-Filing portal for the statutory text, applicable rules and filing procedures. Verify any prescribed form against the requirements for the relevant year.

This is a general explanatory article, not a substitute for checking the applicable legislation, rules, notifications and professional advice for a specific tax year.