Tonnage Tax scheme

published by | February 4, 2025

The Government has introduced Tonnage Tax System (TTS) for taxation of income derived from shipping activities by an Indian Company. The Tonnage Tax Scheme is an optional scheme for qualifying Indian shipping company.

tonnage tax scheme india

Elements of the Scheme

  1. the Basic Training Commitment (BTC), an annual plan produced by the company, setting out the tonnage tax company’s training obligation.
  2. the Annual Adjustment (AA), a retrospective update of the Basic Training Commitment made every year in respect of the preceding year, to account for any changes in training obligation arising as a result of a net increase/decrease in the number of vessels entered in the tonnage tax regime to arrive at Minimum Training Requirement for that financial year;
  3. Payment In Lieu Of Training (PILOT), by the tonnage tax company to the Maritime Training Trust (Trust), if necessary to meet the obligation under Minimum Training Requirements;
  4. Training fee payable by the trainee officer, administrative cost payable by trainee officer and tonnage tax company in equal proportion and stipend to be paid by the tonnage tax company to the trainee officers

Objects

  1. Providing facilities for adequate training to Indian seafaring officers;
  2. To provide all necessary facilities for training and employment of shore-based and ship board officers and also to make India a leading supplier of maritime manpower to the Indian and world shipping;
  3. To encourage Indian citizens to take to sea and for training Indian seafaring officers, by offering necessary incentives, employment avenues and opportunities in India or abroad;
  4. Advancement of any other object of general utility for training and employment of required Indian seafaring officers;
  5. To institute and award fellowships, scholarships, studentships, medals and prizes in the matter of training Indian seafaring officers;
  6. To make provision for research and advisory services and, for that purpose, enter into arrangements and agreements with institutions and bodies, inside and outside of India, in the matter of training Indian seafaring officers;
  7. To maintain or establish a separate cell as part of the Trust, (to be called as ‘TT Cell’) located in the Directorate General of Shipping, to implement all aspects of the Guidelines issued by the Central Government, issuance of certificates and compliance of various formalities provided in the Act and the Guidelines issued by the Central Government and incur all expenditure on employing required staff and providing necessary furniture, fixtures, appliances, equipment, telephones, computers and other paraphernalia required for an office
  8. To do such acts as may become necessary in the event of amendment of the Income-Tax Act relating to tonnage tax and /or the Guidelines issued by the Central Government issued there under.
  9. To do all such acts and things as may be necessary, incidental or conducive to the attainment of all or any of the Objects of the Trust;

What is a Qualifying Company?

A qualifying company should be an Indian company, having atleast one qualifying ships and it should carry out the business that are related to qualifying ships. The place of effective management of the company should be in India. By default the company owning a ship will be regarded as an operator. Even if the ship or part of it is chartered by the company, it can be considered as operating ships, but with the exception of being chattered out by it in a bareboat charter cum demise terms, or on bareboat charter terms for a period exceeding 3 years.

Eligibility Criteria for Tonnage Tax Scheme

A company is expected to own at least one qualifying ship to be eligible for Tonnage Tax Scheme, and that the business of qualifying ship has to be treated as a separate business. Separate accounts must be maintained for the same. Hence, the three main criteria for tonnage tax scheme are:

  • It is a qualifying company
  • The company operates ships
  • The company operates a qualifying ship or ships

SLEW OF DIRECT TAX REFORMS PROPOSED IN UNION BUDGET 2025-26 TO ACHIEVE GOOD GOVERNANCE

Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman presented the Union Budget 2025-26, in the Parliament today. A slew of Direct Tax reforms were proposed in the document with the aim to achieve good governance for the people and economy.

The objectives of the Direct Tax proposals are as follows:

  • Personal Income Tax reforms with special focus on Middle Class: No income tax payable upto total income of Rs. 12 lakh (i.e. average income of Rs.1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs.12.75 lakh for salaried tax payers, due to standard deduction of Rs. 75,000.
  • Rationalization of TDS/TCS for easing difficulties: The limit for tax deduction on interest for senior citizens is proposed to be doubled from the present Rs. 50,000 to Rs. 1 lakh. Similarly, the proposals include annual limit of Rs. 2.40 lakh for TDS on rent to be increased to Rs.6 lakh. This will reduce the number of transactions liable to TDS, thus benefitting small tax payers receiving small payments. The provisions of the higher TDS deduction will now apply only in non-PAN cases. Further, the threshold to collect tax at source (TCS) on remittances under RBI’s Liberalized Remittance Scheme (LRS) is proposed to be increased from Rs.7 lakh to Rs.10 lakh. Also, the delay for payment of TCS up to the due date of filing statement is proposed to be decriminalized.
  • Encouraging Voluntary Compliance: Proposal to extend the time-limit to file updated income tax returns for any assessment year, from the current limit of two years, to four years. It is further proposed to bring amendment in the Act to obligate furnishing of information in respect of crypto-asset transaction, in a statement as prescribed. It has also been proposed to align the definition of virtual digital asset accordingly.
  • Reducing Compliance Burden: Proposal to reduce the compliance burden for small charitable trusts/institutions by increasing their period of registration from 5 years to 10 years. Further, proposal to allow the benefit of claiming the annual value of two self-occupied properties as Nil, without any condition. The Budget also proposes that no tax will be collected at source on sale of specified goods of value of more than fifty lakhs.
  • Ease of Doing Business: Scheme proposed for determining arm’s length price of international transaction for a block period of three years, to streamline the process of transfer pricing and to provide an alternative to yearly examination, in line with global best practices. With a view to reduce litigation and provide certainty in international taxation, the scope of safe harbour rules is being expanded. Parity has been proposed in rates of long term capital gain tax on transfer of securities by non-resident. Further, a proposal has been made to exempt withdrawals made from National Savings Scheme accounts by individuals on or after the 29th August, 2024, while also proposing to allow similar treatment to NPS Vatsalya accounts, subject to overall limits.
  • Employment and Investment:
  1. Tax certainty for Electronics Manufacturing Schemes: Proposal to provide a presumptive taxation regime for non-residents who provide services to a resident company that is establishing or operating an electronics manufacturing facility. Further, a proposal to introduce a safe harbour for tax certainty for non-residents who store components for supply to specified electronics manufacturing units.
  2. Tonnage Tax Scheme for Inland Vessels: The benefits of existing tonnage tax scheme proposed to be extended to inland vessels registered under the Indian Vessels Act, 2021, to promote inland water transport in the country.
  3. Extension for incorporation of Start-Ups: To support the Indian start-up eco-system, proposal to extend the period of incorporation by 5 years, to allow the benefit available to start-ups that are incorporated before 01.04.2030.
  4. International Financial Services Centre (IFSC): In order to attract and promote additional activities in the IFSC, the Budget proposed specific benefits to ship-leasing units, insurance offices and treasury centers of global companies that are set up in IFSC. Further, to claim benefits, the cut-off date for commencement in IFSC has also been extended by five years to 31.03.2030.
  5. Alternate Investment Funds (AIFs): Proposal to provide certainty of taxation to Category I and category II AIFs, which are undertaking investments in infrastructure and other such sectors, on the gains from securities.
  6. Extension of investment date for Sovereign and Pension Funds: Proposal to extend the date of making an investment by five more years, to 31.03.2030, to promote funding from Sovereign Wealth Funds and Pension Funds to the infrastructure sector.
Minimum Training Requirements (MTR)?

Election for the tonnage tax scheme oblige the tonnage tax company to train specified numbers of trainee Indian seafaring officers to meet “Minimum Training Requirements” (MTR). The tonnage tax companies are; of course, free to provide training to more numbers of trainee seafaring officers over and above the specified MTR to meet their requirements.

The ‘Minimum Training Requirement’ for the relevant financial year shall be:

(1)  in case of ship owned or chartered-in by the tonnage tax company ( other than space or slot charters), the number of man-days shall be equivalent to the number of days for which such ships are operated by the tonnage tax company during the financial year multiplied by number of trainee officers required on such ships based on one (1) trainee officer for every ten (10) complement as per the Minimum Safe Manning Document or pro rata thereof:

(2)  in case of space charters or slot charters, the number of man-days to be calculated by dividing the Net Tonnage of slot/space charters of the tonnage tax company by the Net Tonnage Factor and multiplying the result by number of days for which such ships are operated by the tonnage tax company during the financial year and shall include any shortfall of the immediately preceding financial year brought forward in accordance with clause 15 of the Guidelines issued by the Central Government. It is clarified that any candidate accepted by the tonnage tax company for training shall be facilitated to complete the candidate’s required period of training. This should be done in consecutive years before any other trainee is recruited.

Explanation 1: For the purpose of this clause, the Net Tonnage of slot/space charters shall be Net Tonnage as calculated under the notification issued in the official gazette vide explanation to Sec115VG of the Income Tax Act, 1961.

Explanation 2: The ‘Net Tonnage Factor’ shall be the factor notified by the Director General of Shipping for each financial year calculated as the aggregate Net Tonnage of all Qualifying ships registered under the Merchant Shipping Act, 1958 at the end of the preceding financial year divided by the total number of such ships at the end of the preceding financial year and shall be notified by the Director General of Shipping within 60 days from the beginning of each financial year.

Powers and Functions?
  1. To collect, get in and receive fees and other charges for providing training or otherwise from trainee officers, interest, dividend, rent, profit, and other income of the Trust Fund from time to time as and when the same becomes due and payable;
  2. To deal with such fees received, in the manner as provided in the Guidelines issued by the Director-General of Shipping, and appropriate the residual amount to the corpus of the Trust;
  3. To pay out of the income of the Trust Fund all out-goings, payable in respect of the Trust Fund including all ground rent, rates, taxes relating any immovable property forming part of the Trust Fund, premium for insurance, including for professional indemnity of the Trustees, or any other costs, charges, expenses and outgoings of and incidental to the management, administration and maintenance of the Trust Fund and execution of the Trusts herein contained including wages and salaries of employees.
  4. To pay, out of the income of the Trust, for setting up of an office establishment as its separate cell in the Directorate General of Shipping and to provide required staff, furniture, fixtures, appliances, equipment, telephones, computers and other paraphernalia required for an office, for the purpose of carrying out and implementing all aspects of work in accordance with the Act read with the Guidelines issued by the Director-General of Shipping, including issuance of certificates and compliance of various formalities provided in the Act and the Guidelines, and incur all expenditure in that behalf.
  5. To invest all the amounts received and appropriate additions and accretions to the corpus of the Trust.
  6. To employ (including appoint, dismiss, reappoint) such staff (who shall not be a Trustee) as are necessary for the proper pursuit of the objects of the Trust and to make all reasonable and necessary provision for the payment of pensions, gratuity and superannuation to staff and their dependants.
  7. To delegate to any one or more of the Trustees the transaction of any business or the performance of any act required to be transacted or performed in the execution of the trust and which is within the professional competence of such Trustee or Trustees: Provided that the Trustee shall exercise reasonable supervision over any Trustee or Trustees acting on their behalf under this provision and shall ensure that all their acts and proceedings are fully and promptly reported to them.
  8. To do all such other lawful things as are necessary for the achievement of the above objects.
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