Section 172: Shipping Business of Non-Residents
Section 172 of the Income-tax Act, 1961 provides a special mechanism for levying and recovering Indian income tax on certain voyages of ships owned or chartered by non-residents. It treats 7.5% of specified shipping receipts as income, requires a voyage-related return and links port clearance to payment or satisfactory arrangements for payment of tax.
What is Section 172 and when does it apply?
Section 172(1) applies notwithstanding other provisions of the 1961 Act to the levy and recovery of tax where a ship belonging to, or chartered by, a non-resident carries passengers, livestock, mail or goods shipped at a port in India. The rule is associated with occasional shipping operations by non-residents. Its operation should be considered alongside the applicable tax treaty and the regular shipping-income provisions.
Section 172(2): 7.5% deemed income from Indian-port carriage
The law deems 7.5% of the amount paid or payable for the qualifying carriage to the shipowner, charterer or a person acting on their behalf to be income accruing in India. The place of payment does not change this rule: qualifying amounts paid or payable outside India are also included. Under Section 172(8), demurrage, handling charges and similar amounts form part of the receipts used for this computation.
Section 172(3): Return before the ship departs
Before departure from an Indian port, the shipmaster must furnish the Assessing Officer with a return showing the full amounts paid or payable for qualifying carriage shipped at that port since the ship's last arrival. Where the Assessing Officer is satisfied that filing before departure is not possible and satisfactory arrangements have been made for another person to file and pay on the master's behalf, a return filed by that authorised person within 30 days of departure may be accepted as compliance.
Sections 172(4), 172(4A) and 172(5): Assessment and time limit
On receipt of the return, the Assessing Officer assesses the deemed income and determines tax using the rates in force applicable to a company that has not made the arrangements mentioned in Section 194 of the 1961 Act. The amount is payable by the shipmaster. The Assessing Officer may call for supporting accounts and documents.
Section 172(4A) generally prohibits an assessment order after nine months from the end of the financial year in which the return under Section 172(3) is furnished. The historical proviso for returns furnished before 1 April 2007 provided a separate deadline of 31 December 2008; that transitional deadline has no prospective application.
Section 172(6): Tax payment and port clearance
The relevant Customs authority must be satisfied that the tax assessable has been paid or that satisfactory arrangements exist for its payment before granting port clearance. This makes the shipping tax procedure important for voyage planning and port documentation.
Section 172(7): Option for regular assessment
The owner or charterer may claim assessment of total income under the ordinary provisions before the expiry of the assessment year relevant to the previous year in which the ship departed an Indian port. Amounts paid under Section 172 for the relevant previous year are then treated as advance tax, with the resulting balance payable or refundable as applicable. This election should be evaluated with the applicable double-taxation avoidance agreement (DTAA) and actual facts.
Section 316 of the Income-tax Act, 2025
Section 316 carries forward the special levy and recovery framework, including the 7.5% deemed-income rule, qualifying incidental charges, shipmaster return, 30-day authorised-filing mechanism, assessment, nine-month limitation, Customs clearance and regular-assessment option. The 2025 Act refers to its own tax-year terminology and cross-references; for example, the corresponding tax-rate reference is to Section 393(1), Table, serial number 7. The new law places the regular-assessment election deadline before the end of the year following the tax year in which the ship departs the Indian port. Apply the wording of the Act governing the relevant period rather than assuming every procedural detail is identical.
Section 172 compared with Section 44B
Under the 1961 Act, Section 44B generally deals with presumptive computation of non-resident shipping business profits, while Section 172 supplies a special voyage-based levy and recovery procedure. Both provisions may use 7.5% of specified receipts as a computation base, but their scope and administration differ. The corresponding general shipping presumptive rule in the 2025 Act is contained in Section 61, subject to its detailed conditions. Treaty relief and other shipping-specific provisions should be checked independently.
Practical compliance checklist
- Identify the non-resident owner or charterer and the ship's qualifying Indian-port voyage.
- Reconcile freight, passenger, livestock, mail, demurrage, handling and similar charges, including payments outside India.
- Prepare the shipmaster's return and documents before departure or obtain approval for authorised filing within 30 days.
- Confirm tax payment or satisfactory arrangements before seeking port clearance.
- Review applicable DTAA provisions and whether a regular assessment election is appropriate within the prescribed time.
Official statutory references
- Income Tax Department: Section 172, Income-tax Act, 1961
- Income Tax Department: Income-tax Act, 2025 (Section 316)
- Official section correspondence navigator (1961 to 2025)
- Income Tax e-Filing Portal
Frequently asked questions
Is tax under Section 172 equal to 7.5% of freight?
No. The 7.5% is the deemed income amount; income tax is computed on that amount at the applicable statutory rate, subject to relevant relief.
Are demurrage and handling charges included?
Yes. Section 172(8) expressly includes demurrage, handling and similar charges in the relevant receipts.
What is the corresponding provision in the Income-tax Act, 2025?
Section 316 governs shipping business of non-residents under the 2025 Act.