Indian income tax law / Tonnage tax scheme

Section 115VZA: Effect of Temporarily Ceasing to Operate Qualifying Ships

Section 115VZA of the Income-tax Act, 1961 distinguishes a temporary interruption in operating a qualifying ship from a temporary loss of the ship's qualifying status. The two events have different consequences under the tonnage tax scheme.

Updated: 27 October 2026 | Historical provision under the Income-tax Act, 1961

Meaning and purpose of Section 115VZA

Chapter XII-G of the Income-tax Act, 1961 provided an optional tonnage tax regime for eligible shipping companies. Section 115VZA addressed two distinct circumstances: a ship that remains a qualifying ship but is temporarily not operated, and a ship that continues to be operated but temporarily stops meeting the definition of a qualifying ship.

These circumstances must not be confused. A temporary operational stoppage does not, by itself, amount to cessation of operating a qualifying ship for the purposes of the Chapter. Conversely, actual operation of a vessel does not preserve qualifying-ship status when the statutory conditions for that status are not met.

For the statutory meaning of a qualifying ship, read the definition in Section 115VD of the Income-tax Act, 1961 alongside the scheme's other eligibility provisions. The statutory term qualifying company is addressed in Section 115VC.

Legislative transition: The Income-tax Act, 2025 came into effect on 1 April 2026. Section 115VZA is the numbering under the 1961 Act; its application to an earlier previous year or a transitional matter must be considered under the applicable savings and transition provisions. For tax years governed by the 2025 Act, use the corresponding operative law rather than assuming this historical section number applies unchanged.

Section 115VZA(1): Temporary cessation of operating a qualifying ship

Subsection (1) provides that a temporary cessation, as distinct from permanent cessation, of operating a qualifying ship is not treated as cessation of operating that ship. The company is deemed to be operating the qualifying ship for the purposes of Chapter XII-G.

The provision protects the continuity of the ship's operational status for scheme purposes where the interruption is genuinely temporary. The statutory text does not set a fixed number of days for what is temporary. The facts, records and nature of the interruption therefore matter.

Practical significance

A qualifying vessel may be temporarily out of service for repairs, maintenance, inspection or a short operational interruption. These are illustrative circumstances, not automatic statutory exemptions. The company should be able to demonstrate that the stoppage was temporary rather than permanent, and that the ship continued to satisfy the separate qualifying-ship requirements.

Important distinction: The deeming rule concerns whether the company is regarded as operating the ship. It does not independently deem a non-qualifying ship to be a qualifying ship, nor does it remove other requirements of the tonnage tax scheme.

Section 115VZA(2): Ship temporarily ceases to be a qualifying ship

Subsection (2) addresses the opposite situation. If a qualifying company continues to operate a ship but the ship temporarily ceases to be a qualifying ship, it is not considered a qualifying ship for the purposes of Chapter XII-G during that period.

Continued physical operation alone is insufficient. The vessel must meet the applicable statutory definition and conditions of a qualifying ship. Any change affecting its classification should be evaluated using the relevant law and supporting documentation.

This rule prevents the temporary-operation deeming provision in subsection (1) from being used to bypass the qualifying-ship definition.

How the two rules differ: Illustrative examples

Examples based on the distinction in Section 115VZA
Situation	Relevant provision	General consequence
A qualifying ship is temporarily taken out of operation for documented maintenance, and retains its qualifying status.	Section 115VZA(1)	Temporary non-operation is not treated as cessation of operating the qualifying ship.
A ship continues sailing but temporarily fails a statutory requirement for qualifying-ship status.	Section 115VZA(2)	The ship is not treated as qualifying while it fails that requirement.
The company permanently discontinues operating a qualifying ship.	Outside the temporary cessation protection	The deeming protection in subsection (1) does not automatically apply.

These examples explain the statutory distinction; the actual outcome depends on the reason for interruption, the vessel's eligibility and the law applicable to the tax period.

Documents and compliance considerations

Maintain vessel-wise records showing operating periods, lay-up dates and the reasons for any interruption.
Preserve repair, survey, dry-docking, charter and other contemporaneous records that support the temporary nature of a stoppage.
Verify that each ship continues to satisfy the applicable definition of a qualifying ship; separately record any period in which it does not.
Review net tonnage and valid certification under Section 115VX, where relevant.
Maintain separate accounts and obtain the prescribed audit report under Section 115VW, where applicable.
Check the charter-in restrictions under Section 115VV and other tonnage tax conditions.
For periods after the 2025 Act's commencement, check the applicable current statute and transitional provisions.

These are practical recordkeeping recommendations, not an exhaustive list of statutory documentation mandated by Section 115VZA itself.

Frequently asked questions

Does a temporary suspension of ship operations end tonnage tax treatment?

Not merely because operations stop temporarily. Under Section 115VZA(1), a temporary cessation of operating a qualifying ship is not considered cessation of operating it for the purposes of Chapter XII-G.

Is a ship that continues operating always a qualifying ship?

No. Section 115VZA(2) specifically says that a ship which temporarily ceases to qualify is not considered a qualifying ship, even if the qualifying company continues operating it.

Does Section 115VZA define a maximum period for temporary cessation?

The supplied text does not prescribe a numerical duration. Whether cessation is temporary rather than permanent requires examination of the facts and applicable law.

Are temporary cessation and temporary loss of qualifying status the same?

No. Subsection (1) concerns interruption of operation of an otherwise qualifying ship. Subsection (2) concerns loss of qualifying status despite continued operation.

Does Section 115VZA remain the current section number in 2026?

Section 115VZA is the provision under the Income-tax Act, 1961. The Income-tax Act, 2025 governs relevant tax years from its commencement, subject to applicable transition rules. The corresponding current provisions should be checked in the enacted statute.

Official statutory resources

This article explains the text of Section 115VZA supplied in the original webpage. Verify any subsequent amendment, the operative tax-year legislation and specific shipping facts before relying on it for a tax filing or legal opinion.