Section 228 Income Tax Act 2025: What Is Relevant Shipping Income and How Is Book Profit Excluded?

Section 228 explains which profits of a tonnage tax company qualify as relevant shipping income, how incidental income is limited, and how shared costs, non-qualifying vessels and book profit are treated.

What is relevant shipping income under Section 228?

Under Section 228(1), relevant shipping income consists of profits from core activities specified in subsection (3) and profits from incidental activities specified in subsection (7). For a company validly covered by the tonnage tax scheme, Section 226(7) provides for taxation of deemed tonnage income computed under Section 227 rather than separate taxation of relevant shipping income.

Income that does not qualify as relevant shipping income may remain taxable under the ordinary provisions of the Act. The classification of each activity therefore matters even where the company has opted for the tonnage tax scheme.

Which activities are core shipping activities? Section 228(3)

Core activities include operation of qualifying ships and the following specified ship-related or inland-vessel-related activities:

• Earnings from pooling arrangements and contracts of affreightment.
• Specified passenger shipping activities, including fares and food and beverages consumed on board, as provided in the amended statutory text.
• Slot charters, space charters, joint charters, feeder services and container-box leasing connected with container shipping.

Section 228(4) defines a pooling arrangement and a contract of affreightment. Section 228(5) empowers the Central Government, by notification, to exclude specified activities or prescribe limits for their inclusion. Section 228(6) provides for parliamentary oversight of such notifications.

What is the 0.25% limit on incidental shipping income?

Section 228(7) treats activities incidental to core activities as incidental activities where prescribed. Under Section 228(2), the aggregate profits from incidental activities can be included in relevant shipping income only up to 0.25% of turnover from core activities. Any excess is excluded from relevant shipping income and taxed under the other provisions of the Act.

Other provisions of Section 228 explained

Non-qualifying ships and inland vessels - Section 228(8)

Income attributable to operating a ship or inland vessel that does not qualify under the tonnage tax scheme is computed under the ordinary provisions of the Act, not under the special tonnage computation.

Transfers between businesses - Sections 228(9) to 228(11)

Where goods or services move between the tonnage tax business and another business of the same company, the relevant shipping income is computed using market value if the recorded consideration differs from that value. Market value means the price ordinarily obtainable in the open market. If the prescribed computation presents exceptional difficulty, the Assessing Officer may use a reasonable basis.

Connected-person arrangements - Section 228(12)

Where a close connection or arrangement produces more than ordinary profits for the tonnage tax business, the Assessing Officer may determine the income reasonably attributable to that business under this provision.

Shipping losses - Section 228(13)

A loss in relevant shipping income is ignored for the purpose of computing tonnage income. The deemed tonnage income rules operate separately from the accounting profit or loss.

Common costs and shared assets - Sections 228(14) and 228(15)

Common costs must be attributed to the tonnage tax business on a reasonable basis. Where an asset other than a qualifying ship serves both the tonnage business and another business, the Assessing Officer determines a fair allocation of depreciation based on its use.

Exclusion from book profit - Section 228(16)

Book profit or loss from the relevant activities referred to in subsection (1) is excluded from the company's book profit for the purposes of Section 206(1)(c). This is a specific statutory exclusion and should not be confused with a general exemption of all company profits.

Relevant statutory definitions

Illustration: calculation of the incidental income ceiling

Assume a tonnage tax company has turnover of Rs. 40 crore from its core shipping activities and earns Rs. 18 lakh of profits from prescribed incidental activities.

• 0.25% of Rs. 40 crore = Rs. 10 lakh.
• Incidental income potentially included in relevant shipping income = Rs. 10 lakh.
• Excess incidental income taxable under the other provisions of the Act = Rs. 8 lakh.

This is an illustrative calculation assuming all incidental activities satisfy the applicable rules. Actual computation depends on the nature of activities, the statutory text and any relevant notifications.

Frequently asked questions

Is all shipping income covered by tonnage tax?

No. Only qualifying operations and the specified core and incidental activities are covered. Income from non-qualifying ships or excess incidental income is computed under other applicable provisions.

Is the 0.25% ceiling based on profit or turnover?

The ceiling is 0.25% of turnover from core activities; it is applied to the aggregate income from incidental activities.

Can a shipping company ignore losses in computing tonnage income?

Section 228(13) provides that a loss in relevant shipping income is ignored for computation of tonnage income. This does not itself decide the treatment of every other category of loss.

Does Section 228 affect minimum alternate tax book profit?

Yes. Subsection (16) specifically excludes book profit or loss from relevant shipping activities when calculating book profit for Section 206(1)(c).

What was the corresponding law under the Income-tax Act, 1961?

The subject matter was addressed across provisions including Sections 115VI, 115VJ and 115VO. Section 228 of the 2025 Act consolidates several related rules. For earlier periods, the applicable law must be determined under the transition and savings provisions.

Official law and related reading

Updated: 11 November 2026. This article is an explanatory guide; consult the operative statutory text and notifications for a particular tax year.