Section 115VP — Method and Time of Opting for Tonnage Tax Scheme

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

Section 115VP — Method and time of opting for tonnage tax scheme

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 election machinery

Section 115VP governs HOW and WHEN a qualifying company enters the Scheme. The company applies to the jurisdictional Joint Commissioner in the prescribed form (Form 65) and manner [sub-s.(1)]. Timing [sub-s.(2)]: an existing qualifying company could apply in the 'initial period' (after 30-9-2004 but before 1-1-2005); a company incorporated after the initial period, or one that becomes a qualifying company for the first time after it, applies within three months of incorporation / of becoming qualifying. The JCIT, after satisfying himself of eligibility, passes a written order approving or (after hearing) refusing the option [sub-s.(3)]; the order must issue within the time in sub-s.(4); and on approval the Chapter applies from the assessment year relevant to the previous year in which the option is exercised [sub-s.(5)].

2. The Finance Act, 2025 / Act 8 of 2025 layer (in force AY 2026-27)

Three additions are now in force. (a) A new SECOND PROVISO to sub-s.(2) lets a Unit of an International Financial Services Centre that has availed s.80LA deduction apply within three months from the date the deduction CEASES (inserted by Act 8 of 2025 w.e.f. 1-4-2023). (b) A new PROVISO to sub-s.(4) gives the Department, for applications received on or after 1-4-2025, until three months from the end of the QUARTER of receipt to pass the order (inserted by Act 7 of 2025 w.e.f. 1-4-2025) — a relaxation of the earlier 'one month from end of month' timeline. (c) A new Explanation defines 'International Financial Services Centre' (Act 8 of 2025 w.e.f. 1-4-2023). The Finance Act, 2026 makes no change.

3. Approval as a jurisdictional condition

The election is not self-executing: the Scheme applies only on the JCIT's approval (s.115VE(4) read with s.115VP(3)-(5)). A refusal must be a speaking order passed after a reasonable opportunity of hearing [first proviso to sub-s.(3)]. The provision is the procedural gateway to the entire Chapter, and the renewal machinery in s.115VR works by re-applying ss.115VP and 115VQ.

B. STATUTORY POSITION (verbatim operative text)

Section 115VP, Income-tax Act, 1961 (Chapter XII-G), as in force on and after 1 April 2026 (key operative limbs reproduced):

115VP. (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 may be prescribed, for such scheme.

(2) The application under sub-section (1) may be made by any existing qualifying company at any time after the 30th day of September, 2004 but before the 1st day of January, 2005 (hereafter referred to as the “initial period”): Provided that— (i) a company incorporated after the initial period; or (ii) a qualifying company incorporated before the initial period but which becomes a qualifying company for the first time after the initial period, may make an application within three months of the date of its incorporation or the date on which it became a qualifying company, as the case may be: Provided further that a Unit of an International Financial Services Centre which has availed of deduction under section 80LA may make an application within three months from the date on which such deduction ceases.

(3) 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 ... and after satisfying himself about such eligibility ..., he— (i) shall pass an order in writing approving the option for tonnage tax scheme; or (ii) shall, if he is not so satisfied, pass an order in writing refusing to approve the option ..., and a copy of such order shall be sent to the applicant: Provided that no order under clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard.

(4) Every order granting or refusing the approval of the option ... shall be passed before the expiry of one month from the end of the month in which the application was received under sub-section (1): Provided that for an application received under sub-section (1) on or after the 1st April, 2025, order under sub-section (3) shall be passed before the expiry of three months from the end of the quarter in which such application was received.

(5) Where an order granting approval is passed under sub-section (3), the provisions of this Chapter shall apply from the assessment year relevant to the previous year in which the option for tonnage tax scheme is exercised.

Explanation.—For the purposes of this section “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).

Second proviso to sub-s.(2) and the Explanation inserted by Act 8 of 2025 w.e.f. 1-4-2023; proviso to sub-s.(4) inserted by the Finance Act, 2025 (Act 7 of 2025) w.e.f. 1-4-2025. Unamended by the Finance Act, 2026.

C. AUTHORITIES

Candour note: No reported decision construes the s.115VP option/approval machinery directly. The provision is procedural; the authorities below frame the Scheme it admits the company into, and CBDT's exposition of the approval regime.

C-1 The Scheme into which the option admits the company (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 CBDT's exposition of the Scheme (binding)

CBDT Circular No. 5/2005 dated 15 July 2005 — Explanatory Notes to the Finance (No. 2) Act, 2004

Nature: Departmental circular explaining the newly inserted Tonnage Tax Scheme.

Effect: Describes the Scheme as a 'preferential regime of taxation' and clarifies that the charging provision is s.115VA read with s.115VF and s.115VG. Relied on by the Supreme Court in Trans Asian Shipping (supra), which reaffirmed that CBDT circulars explaining a scheme bind the Department.

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.