Section 115VA and Section 115VO: Tonnage Tax for Shipping Companies
Sections 115VA and 115V-O of the Income-tax Act, 1961 formed part of the special tonnage-tax regime for shipping companies. Section 115VA dealt with the optional computation of profits from operating qualifying ships, while Section 115V-O excluded the relevant tonnage-tax book profit or loss from the book-profit computation for minimum alternate tax.
What is the tonnage-tax scheme?
The tonnage-tax scheme is a special method for determining taxable profits of an eligible shipping company from the business of operating qualifying ships. Instead of determining the covered shipping profit only under the ordinary business-income computation rules, an eligible company that validly opts for the scheme computes the relevant income under the special statutory tonnage-tax provisions.
Under the 1961 Act, these rules were placed in Chapter XII-G, titled Special Provisions Relating to Income of Shipping Companies. The chapter included definitions, qualifying-company and qualifying-ship conditions, computation of tonnage income, the procedure for exercising the option, reserve and training requirements, audit provisions and rules dealing with amalgamation, demerger and exclusion from the scheme.
Sections 115VA and 115V-O at a glance
| Provision | Core rule |
|---|---|
| Section 115VA | Allowed a company, at its option and subject to Chapter XII-G, to compute income from the business of operating qualifying ships under the tonnage-tax provisions instead of the ordinary computation under Sections 28 to 43C. |
| Section 115V-O | Excluded the book profit or loss derived from specified activities of a tonnage-tax company from the company's book profit for the purposes of Section 115JB. |
Section 115VA: Computation of profits and gains from operating qualifying ships
Purpose: Section 115VA was the gateway provision for the special computation method. It operated notwithstanding the ordinary business-income computation provisions in Sections 28 to 43C.
In substance, where a company carried on the business of operating qualifying ships, it could opt to have that income computed under Chapter XII-G. The resulting amount was treated as the profits and gains of that business chargeable under the head "Profits and gains of business or profession".
What did Section 115VA mean in practical terms?
The provision did not by itself make every shipping company subject to tonnage tax. The company had to satisfy the statutory requirements of the scheme and exercise the prescribed option. The detailed computation and eligibility rules were contained in the connected provisions of Chapter XII-G, including Sections 115VB to 115VG and the option provisions beginning with Section 115VP.
Section 115V-O: Exclusion from provisions of Section 115JB
Purpose: Section 115V-O coordinated the tonnage-tax regime with the minimum alternate tax provisions in Section 115JB.
In substance, the book profit or loss derived from the activities of a tonnage-tax company referred to in Section 115V-I(1) was excluded from the company's book profit for the purposes of Section 115JB.
Why was the Section 115V-O exclusion important?
Section 115JB imposed minimum alternate tax by reference to a company's statutory "book profit". Section 115V-O prevented the specified tonnage-tax shipping result from being brought back into that MAT computation merely because it appeared in the company's accounts. The provision therefore worked with the special shipping-company regime rather than as a separate exemption available to companies generally.
Difference between Section 115VA and Section 115V-O
| Point | Section 115VA | Section 115V-O |
|---|---|---|
| Subject | Computation of shipping-business income | Book-profit treatment for MAT |
| Main interaction | Overrides ordinary computation under Sections 28 to 43C when the tonnage-tax option applies | Operates in relation to Section 115JB |
| Function | Places qualifying shipping income within the special tonnage-tax computation regime | Removes the relevant tonnage-tax book profit or loss from MAT book profit |
| Who can use it? | A company satisfying the statutory tonnage-tax conditions and validly opting for the scheme | A tonnage-tax company to the extent covered by the statutory rule |
Current position under the Income-tax Act, 2025
The current Income-tax Act reorganises the tonnage-tax rules. The Income Tax Department identifies the scheme in the present Act principally within Sections 225 to 235. Section 226 deals with the tonnage-tax scheme and provides, among other matters, that a tonnage-tax company engaged in operating qualifying ships computes the profits from that business under the scheme and treats the tonnage-tax business separately from its other activities.
The current framework also continues the special treatment of relevant shipping income and its relationship with book profit. Accordingly, readers dealing with tax year 2026-27 and later should verify the corresponding provisions of the Income-tax Act, 2025 and the applicable rules, forms and amendments rather than relying only on the numbering of the repealed 1961 Act.
Official resources
For the current statutory position, use the official Income Tax Department materials. These links are provided as research resources and are not part of the website's main navigation.
- Income-tax Act, 2025 - official Income Tax Department portal
- Section 226 - Tonnage tax scheme under the Income-tax Act, 2025
- Income Tax Department - domestic companies and special provisions relating to shipping companies
- Income Tax e-Filing portal - statutory forms including tonnage-tax forms