Method of opting of tonnage tax scheme and validity
[Section-231 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 231(1) of Income Tax Act 2025
231(1) A qualifying company may opt for the tonnage tax scheme by making an application to the Joint Commissioner having jurisdiction over the company in the form and manner, as prescribed, for such scheme.
Section 231(2) of Income Tax Act 2025
231(2) A qualifying company may make an application within three months, of the date of its incorporation, or of the date on which it becomes a qualifying company for the first time.
Section 231(3) of Income Tax Act 2025
231(3) A Unit of an International Financial Services Centre which has availed of deduction under section 147 may make an application within three months from the date on which such deduction ceases.
Section 231(4) of Income Tax Act 2025
231(4) On receipt of an application for option for tonnage tax scheme under sub-section (1), the Joint Commissioner may call for such information or documents from the company as he thinks necessary in order to satisfy himself about the eligibility of the company and after satisfying himself about such eligibility of the company to make such option for tonnage tax scheme, he shall pass an order in writing––
- (a) approving the option for tonnage tax scheme; or
- (b) refusing to approve the option for tonnage tax scheme, if he is not so satisfied,
- and a copy of such order shall be sent to the applicant.
Section 231(5) of Income Tax Act 2025
231(5) No order under sub-section 4(b) shall be passed unless the applicant has been given a reasonable opportunity of being heard.
Section 231(6) of Income Tax Act 2025
231(6) Every order under sub-section (4) shall be passed before the expiry of three months from the end of the quarter in which the application under sub-section (1) was received.
Section 231(7) of Income Tax Act 2025
231(7) Where an order granting approval is passed under sub-section (4), the provisions of this Part shall apply from the tax year in which the option for tonnage tax scheme is exercised.
Section 231(8) of Income Tax Act 2025
231(8) An option for tonnage tax scheme, after it has been approved under sub-section (4), shall remain in force for ten years from the date on which such option has been exercised and shall be taken into account from the tax year in which such option is exercised.
Section 231(9) of Income Tax Act 2025
231(9) An option for tonnage tax scheme shall cease to have effect from the tax year, in which—
- (a) the qualifying company ceases to be a qualifying company;
- (b) a default is made in complying with the provisions contained in section 232(1) to (20);
- (c) the tonnage tax company is excluded from the tonnage tax scheme under section 234;
- (d) the qualifying company furnishes to the Assessing Officer, a declaration in writing to the effect that the provisions of this Part may not be made applicable to it,
and the profits and gains of the company from the business of operating qualifying ships shall be computed as per other provisions of this Act.
Section 231(10) of Income Tax Act 2025
231(10) An option for tonnage tax scheme approved under sub-section (4) may be renewed within one year from the end of the tax year in which the option ceases to have effect.
Section 231(11) of Income Tax Act 2025
231(11) The provisions of sub-sections (1) to (10) shall apply in relation to a renewal of the option for tonnage tax scheme in the same manner as they apply in relation to the approval of option for tonnage tax scheme.
Section 231(12) of Income Tax Act 2025
231(12) A qualifying company,––
- (a) which on its own, opts out of the tonnage tax scheme; or
- (b) which makes a default in complying with the provisions contained in sections 232(1) to (20); or
- (c) whose option has been excluded from tonnage tax scheme in pursuance of an order made under section 234(4),
shall not be eligible to opt for tonnage tax scheme for ten years from the date of opting out or default or order.
FAQs on Section 231 of Income Tax Act 2025
Who is eligible to opt for the tonnage tax scheme?
A qualifying company, as defined under the Act, is eligible to opt for the tonnage tax scheme.
How can a qualifying company opt for the tonnage tax scheme?
The company must make an application to the Joint Commissioner having jurisdiction over it, in the prescribed form and manner.
What is the time limit for applying to opt for the scheme?
The application must be made within three months from the date of incorporation or the date the company first becomes a qualifying company.
Is there a different time limit for units in International Financial Services Centres (IFSCs)?
Yes, a unit of an IFSC that availed deduction under section 147 may apply within three months from the date such deduction ceases.
What happens after the application is submitted?
The Joint Commissioner may request additional information or documents to verify eligibility. Based on the findings, he may approve or refuse the option in writing.
Is the company given a chance to respond before refusal?
Yes, a reasonable opportunity of being heard must be given before passing an order refusing approval.
By when must the order on the application be passed?
The order must be passed before the end of three months from the end of the quarter in which the application was received.
When do the provisions of the tonnage tax scheme become applicable?
They apply from the tax year in which the option for the scheme is exercised and approved.
What is the duration of the tonnage tax scheme once opted?
The option remains valid for ten years from the date it is exercised.
Under what circumstances does the option cease to have effect?
The option ceases if the company ceases to be a qualifying company, defaults on provisions of section 232(1)-(20), is excluded under section 234, or submits a written declaration to opt out.
Can the tonnage tax scheme be renewed after the initial term?
Yes, the option can be renewed within one year from the end of the tax year in which the initial option ceases.
Are the same rules applicable for renewal as for the initial application?
Yes, the provisions of subsections (1) to (10) apply similarly to the renewal of the option.
Is a company allowed to re-opt for the scheme after opting out or being excluded?
No, such a company is not eligible to opt for the scheme again for ten years from the date of opting out, default, or exclusion order.
