Section 235
Section 235: interpretation (definitions for the tonnage tax scheme)
Section 235 closes out the tonnage tax Part of the Act by defining the key terms used throughout Sections 225 to 234 - most importantly, what counts as a "qualifying company" and a "qualifying ship".
Charter-related definitions
"Bareboat charter" means hiring a ship or inland vessel for a stipulated period on terms that give the charterer possession and control, including the right to appoint the master and crew.
"Bareboat charter-cum-demise" is a bareboat charter where ownership of the ship or inland vessel is intended to transfer to the charterer company after a specified period.
"Qualifying company"
A company is a qualifying company if: it is an Indian company; its place of effective management is in India; it owns at least one qualifying ship; and its main object is to carry on the business of operating ships.
"Place of effective management" for this purpose means where the board of directors (or executive directors) make their decisions, or, where the board routinely approves decisions made by executive officers, where those officers perform their functions.
"Qualifying ship"
A ship or inland vessel is a qualifying ship if it is a seagoing ship/vessel or inland vessel of 15 net tonnage or more, is registered under the Merchant Shipping Act, 1958 (or licensed by the Director-General of Shipping if registered outside India, or registered under the Inland Vessels Act, 2021), and has a valid certificate indicating its net tonnage in force.
It does NOT include: a seagoing ship/vessel or inland vessel mainly used to provide goods or services normally provided on land; fishing vessels; factory ships; pleasure crafts; harbour and river ferries; offshore installations; or a qualifying ship used as a fishing vessel for more than thirty days in a tax year.
Other defined terms
"Factory ship" includes a vessel processing fishing produce. "Fishing vessel" and "inland vessel" take the meanings given in the Merchant Shipping Act, 1958 and the Inland Vessels Act, 2021 respectively. "Pleasure craft" means a ship or inland vessel primarily used for sport or recreation. "Seagoing ship" means a ship certified as such by the competent authority of any country.
"Tonnage income" means income of a tonnage tax company computed under this Part. "Tonnage tax activities" means the activities referred to in Section 228(3) and (7). "Tonnage tax business" means the business of operating qualifying ships giving rise to relevant shipping income under Section 228(1). "Tonnage tax company" means a qualifying company for which a tonnage tax option is in force. "Tonnage tax scheme" means the scheme for computing profits of the business of operating qualifying ships under this Part.
Frequently asked questions
Does a fishing vessel qualify for the tonnage tax scheme?
No - Section 235(i) expressly excludes fishing vessels, factory ships, pleasure crafts, harbour/river ferries and offshore installations from the definition of "qualifying ship".
What is the minimum tonnage for a ship to be a "qualifying ship"?
A seagoing ship, vessel or inland vessel must be of 15 net tonnage or more to qualify.
Can a foreign company use the tonnage tax scheme?
No - a "qualifying company" must be an Indian company with its place of effective management in India, owning at least one qualifying ship, with the main object of operating ships.
Related sections
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