TaxTMI 
TaxTMI 
TaxTMI 
Charter-in Limits under India's Tonnage Tax Regime : Clause 232(15)-(20) of the Income Tax Bill, 2025 Vs. Section 115VV of the Income-tax Act, 1961
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....) to (20), prescribes critical limitations and operational requirements concerning the extent of "chartered in" tonnage that a qualifying company may operate while remaining eligible for the scheme. These provisions correspond closely to the existing Section 115VV of the Income-tax Act, 1961, which also stipulates the permissible limits and consequences of exceeding charter-in thresholds. This commentary undertakes a detailed analysis of Clause 232(15)-(20) of the 2025 Bill, compares them with Section 115VV of the 1961 Act, and explores their legislative intent, operational mechanics, interpretative nuances, and practical implications for stakeholders. Objective and Purpose The legislative intent behind both Clause 232(15)-(20) and Section 115VV is to ensure that the benefits of the TTS accrue primarily to companies with substantial ownership and operation of their own shipping assets, rather than those relying excessively on chartered tonnage. The rationale is rooted in the need to: * Prevent abuse of the TTS by companies that might otherwise operate as intermediaries or brokers, chartering in large fleets without significant capital investment in ships. * Encourage investm....
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....: Prescribed Computation Method Text: "For the purposes of sub-section (16), the average of net tonnage shall be computed in such manner, as prescribed, in consultation with the Director-General of Shipping." Interpretation: The method for computing the average net tonnage is to be detailed in subordinate legislation or rules, with technical input from the Director-General of Shipping. This ensures that the calculation reflects industry realities and technical standards, and may incorporate factors such as days operated, vessel lay-up periods, or other relevant metrics. Potential Issues: The lack of detail at the statutory level may create uncertainty until the prescribed rules are notified. However, the requirement for consultation with the Director-General of Shipping provides assurance of technical adequacy. Clause 232(18): Consequence of Exceeding Charter-in Limit Text: "Where the net tonnage of ships or new inland vessel, as the case may be, chartered in exceeds the limit under sub-section (15) during any tax year, the total income of such company in relation to that tax year shall be computed as if the option for tonnage tax scheme does not have effect for that tax y....
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....-(20) vs. Section 115VV of the Income-tax Act, 1961 1. Substantive Parity A close reading reveals that Clause 232(15)-(20) of the Income Tax Bill, 2025 is, in essence, a restatement and consolidation of the provisions of Section 115VV of the Income-tax Act, 1961, with minor clarificatory changes. Both sets of provisions: * Impose a 49% cap on the net tonnage of qualifying ships that may be chartered in by a tonnage tax company in any tax year/previous year. * Require the calculation of the proportion based on average net tonnage for the year. * Mandate that the computation methodology be prescribed in consultation with the Director-General of Shipping. * Provide for loss of tonnage tax benefit for any year in which the cap is breached. * Provide for permanent loss of the option in case of breach in two consecutive years. * Exclude BBCD chartered ships from the definition of "chartered in." 2. Terminological and Structural Refinements The new Bill introduces certain terminological changes and clarifications: * The reference to "new inland vessel" is made explicit in Clause 232, reflecting the inclusion of inland shipping within the regime's ambit. * The langu....
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....ious year" to "tax year" for consistency in new Bill. (17): Average net tonnage to be computed as prescribed, in consultation with DGS (3): Same requirement Substantively identical; both defer technical details to rules framed with DGS input. (18): Breach leads to loss of TTS for that year (4): Same consequence Identical effect; both impose a strict penalty for single-year breach. (19): Breach for two consecutive years leads to permanent disqualification (5): Same consequence Identical; both provisions are strict liability in nature. (20): BBCD charters excluded from "chartered in" Explanation: BBCD charters excluded Both recognize BBCD as akin to ownership, aligning with international practice. Notable Points of Alignment and Divergence * Terminology: The 2025 Bill uses "tax year" instead of "previous year," reflecting a broader modernization of tax terminology but without substantive change. * Scope: Both provisions extend to ships and (post-amendment) "inland vessels," ensuring parity across vessel types. * Technical Input: Both require the computation method to be prescribed with the technical expertise of the Director-General of Shipping, ensurin....