Income Tax Act 2025: Section 229 for Tax Year 2026-27

Depreciation and gains relating to tonnage tax assets

[Section-229 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]

Section 229(1) of Income Tax Act 2025

229(1) For the purposes of computing depreciation under section 230(1)(d), the depreciation for the first tax year of the tonnage tax scheme (herein referred to as the first tax year) shall be computed on the written down value of the qualifying ships as specified under sub-section (2).

Section 229(2) of Income Tax Act 2025

229(2) The written down value of the block of assets, being ships or inland vessels as the case may be, as on the first day of the first tax year, shall be divided in the ratio of the book written down value of the qualifying ships (herein referred to as the qualifying assets) and the book written down value of the non-qualifying ships (herein referred to as the other assets), as per the following formula:––

D = A x B/ B+C
E = A x C
B+C

where,—

• D = the written down value of the block of qualifying assets as on the first day of the tax year;
• E = the written down value of the block of other assets as on the first day of the tax year;
• A = the written down value of the existing block of assets, being ships as on the last day of the immediately preceding tax year;
• B = the aggregate of book written down value of qualifying assets as on the last day of the preceding tax year; and
• C = the aggregate of the book written down value of other assets as on the last day of the preceding tax year.

Section 229(3) of Income Tax Act 2025

229(3) The block of qualifying assets as determined under sub-section (2) shall constitute a separate block of assets for the purposes of this Part.

Section 229(4) of Income Tax Act 2025

229(4) Where an asset forming part of a block of,—

• 229(4)(a) qualifying assets begins to be used for purposes other than the tonnage tax business, an appropriate portion of the written down value allocable to such asset shall be reduced from the written down value of that block and shall be added to the block of other assets as per the following formula:—
• A = B x C/D
• where,––
  • A = the appropriate portion to be added to the block of the other assets;
  • B = the written down value of block of qualifying assets as on the first day of the tax year;
  • C = the book written down value of qualifying asset which begins to be used for purpose other than the tonnage tax business; and
  • D = the aggregate of book written down value of all the assets forming the block of qualifying assets;
• 229(4)(b) other assets, begins to be used for tonnage tax business, an appropriate portion of the written down value allocable to such asset shall be reduced from the written down value of the block of other assets and shall be added to the block of qualifying asset as per the following formula:—
• E= F x G/I
• where,—
  • E = the appropriate proportion to be added to the block of qualifying asset;
  • F = the written down value of block of other assets as on the first day of the tax year;
  • G = book written down value of the other asset which begins to be used for tonnage tax business; and
  • I = the aggregate of book written down value of all the assets forming the block of other assets.

Section 229(5) of Income Tax Act 2025

229(5) For the purposes of computing depreciation under section 230(1)(d) in respect of an asset mentioned in sub-sections (4)(a) and (b), the depreciation computed for the tax year shall be allocated in the ratio of the number of days for which the asset was used for the tonnage tax business and for purposes other than tonnage tax business.

Section 229(6) of Income Tax Act 2025

229(6) For the removal of doubts, it is hereby declared that for the purposes of this Act, the depreciation on the block of qualifying assets and block of other assets so created shall be allowed as if such written down value referred to in sub-section (2) had been brought forward from the preceding tax year.

Section 229(7) of Income Tax Act 2025

229(7) In this section,—

• (a) “book written down value” means the written down value as per books of accounts; and
• (b) “written down value” means the written down value as calculated for purposes of income-tax.

Section 229(8) of Income Tax Act 2025

229(8) Any profits or gains arising from the transfer of a capital asset being an asset forming part of the block of qualifying assets shall be chargeable to income-tax as per sections 67 and 74, and the capital gains so arising shall be computed as per sections 67 to 81.

Section 229(9) of Income Tax Act 2025

229(9) For the purposes of computing such profits or gains, as referred to in sub-section (8), the provisions of section 74 shall have effect as if for the words “written down value of the block of assets”, the words “written down value of the block of qualifying assets” had been substituted.

Section 229(10) of Income Tax Act 2025

229(10) In this section, “written down value of the block of qualifying assets” means the written down value computed as per sub-section (2).

FAQs on Section 229 of Income Tax Act 2025

What is the purpose of Section 229 in the Income Tax Act, 2025?
Section 229 governs how depreciation and capital gains are computed for assets used in the tonnage tax business, particularly qualifying ships, and how these are treated when transitioning into or out of such use.

How is depreciation computed for qualifying ships in the first tax year of tonnage tax scheme?
Depreciation is computed on the written down value (WDV) of the qualifying ships determined as per Section 229(2).

What is meant by ‘qualifying assets’ and ‘other assets’?
‘Qualifying assets’ are ships used for the tonnage tax business, while ‘other assets’ are ships or inland vessels not used for that purpose.

How is the written down value split between qualifying and other assets?
It is split using the formulas provided in Section 229(2), based on the proportion of book written down values of qualifying and non-qualifying ships.

Do qualifying assets form a separate block of assets?
Yes, as per Section 229(3), qualifying assets constitute a separate block of assets for depreciation purposes.

What happens if a qualifying asset is used for non-tonnage tax purposes?
Under Section 229(4)(a), a proportionate WDV is reduced from the qualifying block and added to the other assets block using a specified formula.

What happens if an asset from the non-qualifying block starts being used for tonnage tax purposes?
Section 229(4)(b) states that an appropriate portion of the WDV is shifted from the other assets block to the qualifying assets block using a specified formula.

How is depreciation allocated if an asset changes its use during the year?
According to Section 229(5), depreciation is apportioned based on the number of days the asset was used for each purpose (tonnage tax vs. non-tonnage tax).

Can depreciation on the new blocks be claimed as if they existed before the tonnage tax scheme?
Yes, Section 229(6) clarifies that depreciation is allowed as if the WDV computed under Section 229(2) had been brought forward from the previous tax year.

What is the meaning of ‘book written down value’ in this context?
As per Section 229(7)(a), it refers to the WDV recorded in the books of accounts.

What is the meaning of ‘written down value’ under this section?
Section 229(7)(b) defines it as the WDV computed for income-tax purposes.

How are capital gains on transfer of qualifying assets taxed?
Profits or gains from the transfer of qualifying assets are chargeable under Sections 67 and 74, and computed as per Sections 67 to 81, as stated in Section 229(8).

Is there any modification in how Section 74 applies to qualifying assets?
Yes, Section 229(9) modifies Section 74 to substitute “written down value of the block of assets” with “written down value of the block of qualifying assets”.

How is ‘written down value of the block of qualifying assets’ defined?
Section 229(10) clarifies that it is the WDV computed under Section 229(2).