Relevant shipping income and exclusion from book profit
[Section-228 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 228(1) of Income Tax Act 2025
228(1) In this Part, the relevant shipping income of a tonnage tax company means—
- (a) its profits from core activities referred to in sub-section (3); and
- (b) its profits from incidental activities referred to in sub-section (7).
Section 228(2) of Income Tax Act 2025
228(2) Where the aggregate of all such incomes specified in sub-section (1)(b) exceeds 0.25% of the turnover from core activities referred to in sub-section (3), such excess shall not form part of the relevant shipping income for the purposes of this Part and shall be taxable under the other provisions of this Act.
Section 228(3) of Income Tax Act 2025
228(3) The core activities of a tonnage tax company shall be—
- 228(3)(a) its activities from operating qualifying ships; and
- 228(3)(b) other ship-related or inland vessel related activities, as the case may be, as follows:—
- (i) shipping contracts in respect of—
- (A) earning from pooling arrangements;
- (B) contracts of affreightment;
- (ii) specific shipping trades, being—
- (A) on-board or on-shore activities of passenger ships comprising of fares and food and beverages consumed on-board;
- (B) slot charters, space charters, joint charters, feeder services and container box leasing of container shipping.
- (i) shipping contracts in respect of—
Section 228(4) of Income Tax Act 2025
228(4) In sub-section (3)(b)(i),––
- (a) “pooling arrangement” means an agreement between two or more persons for providing services through a pool or operating one or more ships or inland vessels as the case may be, and sharing earnings or operating profits on the basis of mutually agreed terms; and
- (b) “contract of affreightment” means a service contract under which a tonnage tax company agrees to transport a specified quantity of specified products at a specified rate, between designated loading and discharging ports over a specified period.
Section 228(5) of Income Tax Act 2025
228(5) The Central Government, if it considers necessary or expedient so to do, may, by notification, exclude any activity referred to in sub-section 3(b) or prescribe the limit up to which such activities shall be included in the core activities for the purposes of this section.
Section 228(6) of Income Tax Act 2025
228(6) Every notification issued under this Part shall be laid, as soon as may be after it is issued, before each House of Parliament, while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the notification, or both Houses agree that the notification should not be issued, the notification shall thereafter have effect only in such modified form or be of no effect; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that notification.
Section 228(7) of Income Tax Act 2025
228(7) The incidental activities shall be the activities which are incidental to the core activities and as prescribed for the purpose.
Section 228(8) of Income Tax Act 2025
228(8) Where a tonnage tax company operates any ship or inland vessels as the case may be, which is not a qualifying ship, the income attributable to operating such non-qualifying ship shall be computed under other provisions of this Act.
Section 228(9) of Income Tax Act 2025
228(9) Where any goods or services held for the purposes of—
- (a) tonnage tax business are transferred to any other business carried on by a tonnage tax company; or
- (b) any other business carried on by such tonnage tax company are transferred to the tonnage tax business,
and, in either case, the consideration, if any, for such transfer as recorded in the accounts of the tonnage tax business does not correspond to the market value of such goods or services as on the date of the transfer, then, the relevant shipping income under this section shall be computed as if the transfer, in either case, had been made at the market value of such goods or services as on that date.
Section 228(10) of Income Tax Act 2025
228(10) In sub-section (9), “market value”, in relation to any goods or services, means the price that such goods or services would ordinarily fetch on sale in the open market.
Section 228(11) of Income Tax Act 2025
228(11) Where, in the opinion of the Assessing Officer, the computation of the relevant shipping income in the manner specified in sub-section (9) presents exceptional difficulties, he may compute such income on such reasonable basis as he considers fit.
Section 228(12) of Income Tax Act 2025
228(12) Where it appears to the Assessing Officer that, owing to the close connection between the tonnage tax company and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the tonnage tax company more than the ordinary profits which might be expected to arise in the tonnage tax business, the Assessing Officer shall, in computing the relevant shipping income of the tonnage tax company for the purposes of this Part, take income as may reasonably be deemed to have been derived therefrom.
Section 228(13) of Income Tax Act 2025
228(13) In this Part, in case the relevant shipping income of a tonnage tax company is a loss, then, such loss shall be ignored for the purposes of computing tonnage income.
Section 228(14) of Income Tax Act 2025
228(14) Where a tonnage tax company also carries on any business or activity other than the tonnage tax business, common costs attributable to the tonnage tax business shall be determined on a reasonable basis.
Section 228(15) of Income Tax Act 2025
228(15) Where any asset, other than a qualifying ship, is not exclusively used for the tonnage tax business by the tonnage tax company, depreciation on such asset shall be allocated between its tonnage tax business and other business on a fair proportion to be determined by the Assessing Officer, having regard to the use of such asset for the purposes of the tonnage tax business and for the other business.
Section 228(16) of Income Tax Act 2025
228(16) The book profit or loss derived from the activities of a tonnage tax company, referred to in sub-section (1), shall be excluded from the book profit of the company for the purposes of section 206.
FAQs on Section 228 of Income Tax Act 2025
What is ‘relevant shipping income’ of a tonnage tax company?
Relevant shipping income means the profits from core activities under Section 228(3) and profits from incidental activities under Section 228(7).
What constitutes ‘core activities’ for a tonnage tax company under Section 228?
Core activities include operating qualifying ships and other related activities like pooling arrangements, contracts of affreightment, onboard/offshore services of passenger ships, slot charters, space charters, joint charters, feeder services, and container box leasing.
What are pooling arrangements and contracts of affreightment?
Pooling arrangements are agreements to operate ships jointly and share profits. Contracts of affreightment involve transporting specified goods at an agreed rate over time between designated ports.
What are incidental activities under Section 228?
Incidental activities are those prescribed as incidental to the core shipping activities.
Is there a limit on incidental activities being considered as relevant shipping income?
Yes. If profits from incidental activities exceed 0.25% of turnover from core activities, the excess is excluded from relevant shipping income and taxed under other provisions.
Can the Central Government modify what qualifies as a core activity?
Yes, the Central Government can exclude activities or prescribe limits via notification, which is subject to Parliamentary oversight.
What happens if a tonnage tax company operates a non-qualifying ship?
Income from non-qualifying ships is computed and taxed under general provisions, not under tonnage tax.
How are transfers of goods/services between tonnage tax and other businesses treated?
If goods or services are transferred at a value not matching market value, the income is recalculated as if transferred at market value.
How is ‘market value’ defined for such inter-business transfers?
Market value means the open market price the goods or services would ordinarily fetch.
What if calculating relevant shipping income as per transfer pricing presents difficulties?
The Assessing Officer can compute such income on a reasonable basis if the standard method is too complex.
How are excessive profits from related party transactions handled?
If business with related persons results in more than ordinary profits, the Assessing Officer will compute income on a reasonable basis as deemed to arise.
What if the tonnage tax business incurs a loss?
Any loss from relevant shipping income is ignored for the purpose of computing tonnage income.
How are shared costs between tonnage and other businesses treated?
Common costs must be allocated to the tonnage tax business on a reasonable basis.
How is depreciation treated for assets not exclusively used for tonnage tax?
Depreciation is allocated between tonnage tax and other businesses proportionately based on usage, as determined by the Assessing Officer.
Are tonnage tax profits included in the company’s book profit under section 206?
No, book profit or loss from tonnage tax activities is excluded from book profit for Section 206 purposes.
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