Tonnage Tax Scheme

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. Only after satisfying certain conditions a company is eligible to be enrolled under the scheme.

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

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.

What is a Qualifying Ship?

A qualifiying ship under the Tonnage Tax Scheme satisfied the following criterias:

It is a sea going ship or a vessel of 15 net tonnage or more.
A ship that is registered under the Merchant Shipping Act , 1958
For a ship that is registered outside India the license has to be issued by the director general of shipping
Ship should hold an effective certificate that indicates its net tonnage .

The profit from the business operating using the qualifying ship will not be applicable for Minimum Alternative Tax provisions. A company which opts for this scheme is neither allowed any set off of loss nor any depreciation. And a company can be expelled from Tonnage Tax Scheme under any circumstances, and companies need to pay taxes if they are faced with losses in the previous year.

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Frequently Asked Questions

Common questions about Tonnage Tax Scheme for Indian Shipping Companies.

The Tonnage Tax Scheme is an optional tax regime introduced by the Indian government for taxation of income derived from shipping activities by Indian companies. It allows eligible companies to pay taxes based on the tonnage of their qualifying ships instead of the actual profits earned.

A company is eligible for the Tonnage Tax Scheme if it satisfies the following criteria: it is an Indian company, it owns at least one qualifying ship, and it operates a business related to the qualifying ship(s). Additionally, the company's place of effective management should be in India.

A qualifying ship under the Tonnage Tax Scheme should be a sea-going vessel with a net tonnage of 15 or more, registered under the Merchant Shipping Act, 1958 (for Indian ships) or holding a valid license issued by the Director General of Shipping (for foreign-registered ships). The ship should also have a valid certificate indicating its net tonnage.

The main benefit of the Tonnage Tax Scheme is that companies can pay taxes based on the tonnage of their qualifying ships, rather than their actual profits. This can provide a more predictable and stable tax liability. Additionally, the profit from the business operating using qualifying ships is not subject to Minimum Alternative Tax provisions.

Yes, there are certain limitations under the Tonnage Tax Scheme. Companies opting for this scheme are not allowed to carry forward or set off losses, nor can they claim depreciation. Additionally, if a company faces losses in the previous year, it may be expelled from the Tonnage Tax Scheme and have to pay taxes accordingly.

The Tonnage Tax Scheme is an optional scheme, and a company can remain enrolled in it for a period of 10 consecutive years. After the completion of this period, the company can either continue with the scheme or opt-out of it.

Yes, a company can operate both qualifying and non-qualifying ships under the Tonnage Tax Scheme. However, it is required to maintain separate accounts for the business related to qualifying ships and treat it as a separate business.

If a company charters out a qualifying ship on bareboat charter-cum-demise terms or on bareboat charter terms for a period exceeding 3 years, it will not be considered as operating that ship for the purposes of the Tonnage Tax Scheme.

Yes, the place of effective management of the company is an important criterion for eligibility under the Tonnage Tax Scheme. The company's place of effective management should be in India.

No, companies enrolled in the Tonnage Tax Scheme are not allowed to claim depreciation on their qualifying ships. This is one of the limitations of opting for this tax regime.