Section 115VV and Section 115VW: Tonnage Tax Charter-In Limit, Books and Audit

Sections 115VV and 115VW formed part of Chapter XII-G of the Income-tax Act, 1961 and prescribed important conditions for companies using the tonnage tax scheme. Section 115VV dealt with the limit on chartered-in tonnage, while Section 115VW required separate books of account and an accountant's report.

Current-law update: For the present Income-tax Act, 2025 framework, the corresponding tonnage tax conditions are consolidated in Section 232. The charter-in limit is contained in Section 232(15) to 232(20), and the separate-books and audit-report requirement is contained in Section 232(21). The older Section 115VV and Section 115VW text remains relevant when reading or applying the Income-tax Act, 1961 subject to the repeal and savings provisions governing earlier periods.

Section 115VV

Subject: Limit for charter in of tonnage.

The general rule limited chartered-in net tonnage to 49% of the net tonnage of qualifying ships operated by a company that had opted for the tonnage tax scheme.

Section 115VW

Subject: Maintenance and audit of accounts.

The tonnage tax option depended on maintaining separate books for the qualifying-ships business and furnishing the prescribed accountant's report within the statutory time.

Section 115VV - Limit for Charter In of Tonnage

Section 115VV applied to every company that had opted for the tonnage tax scheme. Its purpose was to ensure that the scheme was not used where an excessive proportion of the qualifying fleet was merely chartered in rather than operated within the statutory limits.

Key requirements under Section 115VV

49% ceiling: Not more than 49% of the net tonnage of the qualifying ships operated by the company during a previous year could be chartered in.
Average net tonnage: The proportion was calculated with reference to the average net tonnage during the relevant previous year.
Prescribed computation: The average net tonnage was required to be computed in the prescribed manner in consultation with the Director-General of Shipping.
Effect of exceeding the limit for a year: If chartered-in net tonnage exceeded the statutory ceiling, the company's total income for that previous year was computed as though the tonnage tax option did not have effect for that year.
Two consecutive years: If the limit was exceeded in two consecutive previous years, the tonnage tax option ceased to have effect from the beginning of the previous year following the second consecutive year of breach.

Meaning of chartered in for this rule: The statutory explanation excluded a ship chartered in on bareboat charter-cum-demise terms from the expression "chartered in" for Section 115VV.

Related definition: bareboat charter-cum-demise

Under Section 115V of the Income-tax Act, 1961, a "bareboat charter-cum-demise" meant a bareboat charter where ownership of the ship was intended to be transferred after a specified period to the company to which it was chartered. This definition is important because such a charter was excluded from the Section 115VV charter-in calculation.

Practical effect: A breach of the 49% limit could take the company outside the tonnage tax scheme for the affected year, and repeated breach in two consecutive years could terminate the option prospectively in the manner prescribed by the section.

Section 115VW - Maintenance and Audit of Accounts

Section 115VW imposed accounting and reporting conditions on a tonnage tax company. The option for the tonnage tax scheme did not have effect for a previous year unless the company complied with both requirements below.

Separate books of account: The company had to maintain separate books of account for the business of operating qualifying ships.
Accountant's report: The company had to furnish, before the specified date referred to in Section 44AB, the report of an accountant in the prescribed form, duly signed and verified by that accountant.

For this section, the expression "accountant" carried the meaning assigned to it by the relevant definition under Section 288 of the Income-tax Act, 1961.

Current Position Under the Income-tax Act, 2025

The Income-tax Act, 2025 reorganised the tonnage tax provisions. The substance relevant to this page now appears in Section 232, titled "Certain conditions for applicability of tonnage tax scheme." The current framework continues the 49% charter-in ceiling and the consequences of exceeding that limit, while the accounting and audit condition appears in Section 232(21).

Under the current provision, the charter-in rules also refer to an inland vessel, where applicable. Section 232(21) requires separate books for the business of operating qualifying ships and requires the prescribed accountant's report to be furnished before the specified date. The Income Tax Department's 2026 forms guidance identifies Form 66 as the audit report for the tonnage tax scheme under Section 232(21).

For current compliance: Read Section 232 of the Income-tax Act, 2025 together with the Income-tax Rules, 2026 and the applicable prescribed form. For an earlier assessment or proceeding governed by the repealed 1961 Act, check the applicable repeal and savings provisions before deciding which statutory text controls.

Related Tonnage Tax Provisions

The following internal pages provide the surrounding provisions of the tonnage tax scheme:

Official Resources

Official links are provided for verification and current compliance. Statutory provisions, rules, notifications and prescribed forms should be checked for the relevant tax year.