Section 115V and Section 115V-I: Tonnage Tax Definitions and Relevant Shipping Income

Sections 115V and 115V-I formed part of Chapter XII-G of the Income-tax Act, 1961 and dealt respectively with definitions used in the tonnage tax scheme and the meaning of relevant shipping income. From 1 April 2026, the Income-tax Act, 2025 is the current law for Tax Year 2026-27 onwards, while the 1961 Act continues to matter for earlier years and saved proceedings.

Current-law update: For current tax years, the corresponding framework is contained in Part G of Chapter XIII of the Income-tax Act, 2025. Section 228 deals with relevant shipping income and related rules, while Section 235 contains the interpretation and definitions for the tonnage tax provisions. The legacy Section 115V and Section 115V-I material below remains useful for matters governed by the Income-tax Act, 1961.

On this pageLegacy Section 115V Legacy Section 115V-I Current law from 1 April 2026 Official sources

Section 115V of the Income-tax Act, 1961: Definitions

Section 115V defined expressions used throughout the tonnage tax chapter. In substance, the provision covered the following terms:

Bareboat charterHiring of a ship for a stipulated period on terms giving the charterer possession and control, including the right to appoint the master and crew.

Bareboat charter-cum-demiseA bareboat charter under which ownership is intended to be transferred, after the specified period, to the company to which the ship is chartered.

Director-General of ShippingThe Director-General of Shipping appointed by the Central Government under the Merchant Shipping law referred to in the provision.

Factory ship and fishing vesselThe section addressed factory ships used for processing fishing produce and adopted the statutory meaning of fishing vessel under the Merchant Shipping law.

Pleasure craftA ship primarily used for sport or recreation.

Qualifying company and qualifying shipThese expressions referred to the companies and ships satisfying the separate statutory conditions of the tonnage tax scheme.

Seagoing shipA ship certified as seagoing by the competent authority of a country.

Tonnage incomeIncome of a tonnage tax company computed under the special tonnage tax provisions.

Tonnage tax activitiesThe core and incidental activities identified for the purposes of relevant shipping income.

Tonnage tax company and tonnage tax schemeA qualifying company whose tonnage tax option is in force, and the statutory scheme for computing profits and gains from operating qualifying ships.

Section 115V-I of the Income-tax Act, 1961: Relevant shipping income

Under the legacy provision, relevant shipping income of a tonnage tax company comprised profits from specified core activities and prescribed incidental activities. Incidental activity income exceeding 0.25% of turnover from core activities was excluded from relevant shipping income and taxed under the other provisions of the Act.

Core activities

Core activities included operating qualifying ships and specified ship-related activities. These included earnings from pooling arrangements, contracts of affreightment, passenger-ship activities relating to fares and food and beverages consumed on board, and specified container-shipping arrangements such as slot charters, space charters, joint charters, feeder services and container box leasing.

Pooling arrangement and contract of affreightment

A pooling arrangement broadly means an agreement under which two or more persons provide services through a pool or operate ships and share earnings or operating profits on mutually agreed terms. A contract of affreightment is a service contract to transport a specified quantity of specified products at an agreed rate between designated loading and discharge ports over a specified period.

Incidental activities and non-qualifying operations

Incidental activities are activities incidental to the core activities and prescribed for the purpose. Income attributable to operating a non-qualifying ship is computed under the ordinary provisions rather than under the tonnage tax scheme.

Transfers, market value and connected-party arrangements

The legacy provision also required adjustments where goods or services moved between tonnage tax business and another business at a recorded consideration different from market value. It further empowered the Assessing Officer to address arrangements producing more than ordinary profits because of close connection or other business arrangements. A loss in relevant shipping income was ignored for computing tonnage income.

Current law from 1 April 2026: Income-tax Act, 2025

The Income-tax Act, 2025 came into force on 1 April 2026. The tonnage tax provisions are reorganised in Part G of Chapter XIII. The main current provisions relevant to this page are Sections 225 to 235.

Section 228: Relevant shipping income and exclusion from book profit

Section 228 now consolidates the rules on relevant shipping income. Relevant shipping income includes profits from core activities and incidental activities. The 0.25% ceiling for incidental activity income continues: excess incidental income falls outside relevant shipping income and is taxable under the other provisions of the Act.

The current provision also expressly covers specified ship-related or inland-vessel-related activities. It contains rules for non-qualifying ships or inland vessels, transfers between businesses at market value, connected-party arrangements, common costs and allocation of depreciation. It also provides for exclusion of the relevant book profit or loss from book profit for the provision referred to in Section 228(16).

Section 235: Interpretation

Section 235 now houses the principal definitions for this part, including bareboat charter, bareboat charter-cum-demise, inland vessel, pleasure craft, qualifying company, qualifying ship, seagoing ship, tonnage income, tonnage tax activities, tonnage tax business, tonnage tax company and tonnage tax scheme.

The current framework includes inland vessels within the tonnage tax regime where the statutory conditions are satisfied. This is an important update compared with older versions of this page.

Transition note: Matters relating to periods before 1 April 2026 may continue under the Income-tax Act, 1961 because of the repeal-and-savings provisions. The applicable Act should therefore be identified by the relevant tax period and proceeding.