Section 115VG — Computation of Tonnage Income

CHAPTER XII-G — SPECIAL PROVISIONS RELATING TO INCOME OF SHIPPING COMPANIES (TONNAGE TAX)

Section 115VG — Computation of tonnage income

Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise

Chapter / Part: Chapter XII-G (Special Provisions Relating to Income of Shipping Companies — the Tonnage Tax Scheme), inserted by the Finance (No. 2) Act, 2004 w.e.f. 1-4-2005 (AY 2005-06).

Finance Act, 2026: No amendment. The Finance Act, 2026 does not touch any section of Chapter XII-G (verified against the Finance Act, 2026 text).

Finance Act, 2025: Extended the Scheme to inland vessels (Inland Vessels Act, 2021) — inland-vessel words inserted across the Chapter w.e.f. 1-4-2026; s.115VP timeline/IFSC provisos also added. Text below is the in-force position for AY 2026-27.

A. SECTION COMMENTARY

1. The presumptive engine

Section 115VG is the arithmetical heart of the Scheme. Tonnage income is the aggregate, over all qualifying ships, of each ship's DAILY tonnage income multiplied by the number of operating days [sub-ss.(1)-(2)]. The daily tonnage income is read off a fixed statutory slab keyed to net tonnage [sub-s.(3)]: Rs.70 per 100 tons up to 1,000 tons, rising by tapering increments to Rs.11,770 plus Rs.29 per 100 tons beyond 25,000 tons. Tonnage is rounded to the nearest 100 tons by the rule in sub-s.(5). Sub-section (6) seals the regime: 'no deduction or set off shall be allowed in computing the tonnage income'.

2. 'Deemed tonnage' — sub-section (4) and the slot-charter case

Sub-section (4) is the provision the Supreme Court found decisive in Trans Asian Shipping. It defines 'tonnage' to mean the tonnage in the s.115VX certificate AND to INCLUDE 'deemed tonnage' computed in the prescribed manner; the Explanation states that deemed tonnage is the tonnage in respect of an arrangement of purchase of slots, slot charter and sharing of break-bulk vessel. The Court held that because slot/space charters generate deemed tonnage — not tonnage referable to an identified qualifying ship — a company need not produce a ship-specific s.115VX certificate for such income; to require one would make the deemed-tonnage limb otiose. Slot-charter income is therefore computed within tonnage income.

3. Practical points

The slab is the same for inland vessels (the Finance Act, 2025 added inland-vessel words to sub-s.(4) but did not alter the rates). Part-year operation is captured by counting only the days the ship is operated as a qualifying ship [sub-s.(2)(b)]. The rounding rule (sub-s.(5)) and the absolute bar on deductions (sub-s.(6)) leave no room for the assessee to reduce, or the Revenue to inflate, the presumptive figure once tonnage and days are fixed.

B. STATUTORY POSITION (verbatim operative text)

Section 115VG, Income-tax Act, 1961 (Chapter XII-G), as in force on and after 1 April 2026:

115VG. (1) The tonnage income of a tonnage tax company for a previous year shall be the aggregate of the tonnage income of each qualifying ship computed in accordance with the provisions of sub-sections (2) and (3).

(2) For the purposes of sub-section (1), the tonnage income of each qualifying ship shall be the daily tonnage income of each such ship multiplied by— (a) the number of days in the previous year; or (b) the number of days in part of the previous year in case the ship is operated by the company as a qualifying ship for only part of the previous year, as the case may be.

(3) For the purposes of sub-section (2), the daily tonnage income of a qualifying ship having tonnage referred to in column (1) of the Table below shall be the amount specified in the corresponding entry in column (2) of the Table:—

TABLE — Qualifying ship having net tonnage / Amount of daily tonnage income: up to 1,000 — Rs. 70 for each 100 tons; exceeding 1,000 but not more than 10,000 — Rs. 700 plus Rs. 53 for each 100 tons exceeding 1,000 tons; exceeding 10,000 but not more than 25,000 — Rs. 5,470 plus Rs. 42 for each 100 tons exceeding 10,000 tons; exceeding 25,000 — Rs. 11,770 plus Rs. 29 for each 100 tons exceeding 25,000 tons.

(4) For the purposes of this Chapter, the tonnage shall mean the tonnage of a ship or inland vessel, as the case may be, indicated in the certificate referred to in section 115VX and includes the deemed tonnage computed in the prescribed manner. Explanation.—For the purposes of this sub-section, “deemed tonnage” shall be the tonnage in respect of an arrangement of purchase of slots, slot charter and an arrangement of sharing of break-bulk vessel.

(5) The tonnage shall be rounded off to the nearest multiple of hundred tons and for this purpose any tonnage consisting of kilograms shall be ignored and thereafter if such tonnage is not a multiple of hundred, then, if the last figure in that amount is fifty tons or more, the tonnage shall be increased to the next higher tonnage which is a multiple of hundred and if the last figure is less than fifty tons, the tonnage shall be reduced to the next lower tonnage which is a multiple of hundred; and the tonnage so rounded off shall be the tonnage of the ship for the purposes of this section.

(6) Notwithstanding anything contained in any other provision of this Act, no deduction or set off shall be allowed in computing the tonnage income under this Chapter.

Inland-vessel words in sub-s.(4) inserted by the Finance Act, 2025 w.e.f. 1-4-2026 (rates unchanged). Unamended by the Finance Act, 2026.

C. AUTHORITIES

Direct authority — sub-section (4) ('deemed tonnage') is the provision the Supreme Court applied in the slot-charter case; sub-section (6) underpins the no-overlay holding in Four M Maritime.

C-1 'Deemed tonnage' and slot charters (Supreme Court)

CIT v. Trans Asian Shipping Services (P) Ltd — (2016) 385 ITR 637 (SC) / [2016] 71 taxmann.com 35 / (2016) 241 Taxman 30 (SC)

Forum / Bench: Supreme Court of India; T.S. Thakur CJI, A.K. Sikri J and R. Banumathi J. Judgment dated 5 July 2016, affirming the Kerala High Court and the Cochin Bench of the Tribunal.

Provisions: Sections 115VA, 115VB, 115VF, 115VG (including the s.115VG(4) Explanation on 'deemed tonnage') and 115VX, read with Rule 11Q; Chapter XII-G generally.

Issue: Whether income from 'slot charter' operations of a tonnage tax company can be included in 'tonnage income' under the Tonnage Tax Scheme (TTS) even where those operations are carried on in ships that are NOT the company's own 'qualifying ships' — and whether production of the tonnage certificate referred to in s.115VX is a pre-condition for computing such slot-charter income.

Held: Allowing the assessee, the Court held that although only income from operating a 'qualifying ship' is computed under Chapter XII-G, s.115VB expressly treats a company as 'operating a ship' even where only a PART of a ship has been chartered in under an arrangement such as slot charter, space charter or joint charter. A slot-charter arrangement is made with a shipping line and not in relation to an identified ship, so the carrying vessel (and its certificate) cannot be identified. The 'deemed tonnage' mechanism in the Explanation to s.115VG(4) — covering purchase of slots, slot charter and sharing of break-bulk vessel — was introduced precisely to capture such arrangements; to insist on a s.115VX certificate for slot charters would render deemed tonnage otiose. The s.115VX certificate requirement therefore does NOT apply to slot/space-charter operations and the slot-charter income is includible in tonnage income.

Ratio / why it matters: The leading — and only — Supreme Court authority on Chapter XII-G. It settles the architecture of the Scheme: (i) the charging provision is s.115VA read with s.115VF and s.115VG; (ii) the TTS is a 'preferential regime of taxation' to be construed to advance its object of making Indian shipping globally competitive (Rakesh Mohan Committee, January 2002); and (iii) 'deemed tonnage' is a distinct head of tonnage not dependent on a ship-specific certificate. The Court relied on CBDT Circular No. 5/2005 dated 15-7-2005 and reaffirmed that CBDT circulars explaining a scheme bind the Department.

C-2 No deduction / set-off — and no s.14A overlay

ACIT v. Four M Maritime (P) Ltd — [2015] 152 ITD 557 / 56 taxmann.com 348 (Chennai - Trib.)

Forum: Income-tax Appellate Tribunal, Chennai Bench.

Provisions: Section 115VD (qualifying ship); Chapter XII-G read with s.14A and Rule 8D; s.115VL / s.115VG(6).

Held: (i) A ship transporting coal from one Indian port to another is a 'qualifying ship' for TTS (following the coastal-shipping line of West Asia Maritime). (ii) Once shipping income is computed under the self-contained presumptive code of Chapter XII-G, a disallowance under s.14A read with Rule 8D cannot be superimposed on that income — tonnage income is a deemed figure from which no further deduction or set-off is allowed, and correspondingly no s.14A disallowance is made against it.

Ratio / why it matters: Twin authority — reaffirms coastal-shipping eligibility under s.115VD, and establishes that the Chapter XII-G code displaces the normal computational machinery (including s.14A) in respect of tonnage income, supporting the 'general exclusion of deduction and set-off' philosophy of ss.115VL and 115VG(6).

Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text reproduced verbatim from the Income-tax Act, 1961 (text as in force on and after 1 April 2026, incorporating the inland-vessel insertions made by the Finance Act, 2025 with effect from 1 April 2026). Citations are stated as reported; tribunal and stay-stage orders are flagged as such. Where a section has not been judicially construed, that is stated candidly and the nearest governing authority is given. This material is for professional reference and is not legal advice.