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Tonnage Tax scheme

Tonnage Tax Scheme

 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.