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    Allocation of shared costs and depreciation: apportionment on reasonable basis and fair proportion affects tonnage tax computations.
    Clause 228(14) requires common costs attributable to the tonnage tax business to be allocated on a reasonable basis, with taxpayers maintaining records to support apportionment. Clause 228(15) requires depreciation for assets other than qualifying ships to be apportioned on a fair proportion determined by the Assessing Officer with reference to actual use. Both provisions mirror Section 115VJ, vesting discretion in the AO and preserving the objective of preventing tax arbitrage while increasing documentation and compliance burdens.
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    Tonnage tax regime: clarifies qualifying shipping income, market value inter company valuation, and related party anti avoidance adjustments.
    Tonnage tax applies to qualifying shipping income measured by net tonnage, defined as profits from specified core shipping activities and prescribed incidental activities; incidental income above a prescribed threshold is excluded. Inter business transfers must be computed at market value, with assessing officer power to use reasonable bases in exceptional cases. Related party arrangements producing more than ordinary profits may be adjusted to reasonable levels. The Central Government may exclude activities or set limits by notification subject to parliamentary laying. Losses in tonnage computation are ignored.
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    Allocation of tonnage income: proportional or independent computation affects tax treatment of jointly operated qualifying ships.
    Computation of tonnage income for jointly operated qualifying ships follows a two-step approach: where participating companies' shares are definite and ascertainable, income is allocated proportionately to each company; where shares are not definite and ascertainable, tonnage income for each operator is computed as if it were the sole operator. The rule aligns taxation with economic interest, creates documentary and compliance incentives, functions as an anti-avoidance measure, and may interact with cross-border tax rules, requiring clearer guidance on "definite and ascertainable" shares and documentation standards.
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    Tonnage tax regime: ships' taxable income computed by daily tonnage rates and aggregation, excluding deductions.
    Clause 227(1)-(6) prescribes a ship wise tonnage tax: each qualifying ship's tonnage income equals its daily tonnage income multiplied by qualifying days, with daily rates set by a four tier slab linked to certified net tonnage. Tonnage includes certified physical tonnage and prescribed deemed tonnage for slot and sharing arrangements, rounded to the nearest hundred tons. A non obstante clause bars any deductions or set offs, making the computed tonnage income the exclusive tax base under the Part.
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    Tonnage tax scheme: deemed tonnage income treated as business profits, excluding actual shipping income under eligibility conditions.
    Clause 226(7) mandates that tonnage income be computed under a separate formulaic provision and be deemed to be the profits chargeable under business income, while expressly excluding the actual "relevant shipping income" from tax once the tonnage computation applies; these effects are conditional on compliance with the Part's eligibility, option, separation, and record keeping requirements.
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    Tonnage tax scheme: elective presumptive taxation for shipping income, requiring separate accounting and exclusive computation under qualifying criteria.
    The tonnage tax scheme is an elective presumptive regime requiring eligible companies operating qualifying ships to compute profits from that business exclusively under the tonnage basis; the tonnage tax business is treated as a separate business with independent computation and accounting, and companies not opting or ineligible must compute shipping profits under the normal provisions of the Act.
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    Qualifying ship definition governs tonnage tax eligibility by tying registration, certification, and operational use to tax benefit access.
    The definition of qualifying ship in Clause 235(i) requires three operative conditions for tonnage tax eligibility: a minimum net tonnage, registration under the relevant shipping statute or an authorised foreign licence, and a valid certificate evidencing net tonnage. It lists explicit exclusions-vessels providing services normally provided on land, fishing vessels, factory ships, pleasure crafts, harbour and river ferries, offshore installations-and disqualifies vessels used for fishing beyond a specified threshold in a tax year, anchoring eligibility in maritime regulatory certification and operational use.
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    Place of effective management central to qualifying company status, restricting tonnage tax benefits to genuinely India-managed shipping firms.
    The qualifying company for the tonnage tax regime must satisfy four cumulative conditions: be an Indian company; have its place of effective management in India-defined to include decisions made by executives as well as the board; own at least one qualifying ship; and have its main object as operating ships. Clause 235(h) consolidates these criteria within a broader definitional framework and references updated maritime legislation to clarify eligibility and reduce interpretive disputes.
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    Tonnage tax eligibility defined by operation status: owners and charterers qualify, long term bareboat lessors excluded.
    Clause 226(1) treats a company as operating a ship or inland vessel if it owns or charters a vessel, including partial charters such as slot, space, or joint charters, and excludes companies that have chartered out vessels on bareboat charter or bareboat charter cum demise terms for periods exceeding three years, thereby distinguishing operational risk bearing operators from passive, long term financiers for purposes of the tonnage tax scheme.
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    Tonnage tax regime: option to compute shipping income on a tonnage basis with deeming treatment as business profits.
    Clause 225 creates a self-contained tonnage tax regime for companies operating qualifying ships, allowing an option to compute income under its Part with a deeming provision treating that income as profits and gains of business; key operational questions concern the definition of qualifying ships, the option's exercise and lock-in mechanics, and interaction with loss set-off, allowances, and other tax measures.
    Act RulesBills
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    Tonnage tax definitions: expanded, self-contained eligibility rules broaden coverage and tighten residency and exclusion tests.
    Clause 235 consolidates and expands tonnage tax definitions by explicitly including inland vessels, embedding a detailed qualifying company test requiring Indian residency, ownership of qualifying ships, principal shipping business, and a specified place of effective management; it also defines qualifying ship with tonnage, registration/licensing and certification requirements and enumerated exclusions to prevent abuse.
    Act RulesBills
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    Pass-through taxation preserves investor-level tax treatment of investment fund income while ring-fencing fund-level losses.
    Clause 224 restates a pass-through regime: income from investments in a regulated fund is taxed in the hands of unit holders as if held directly, while business income remains taxable at the fund level. Business losses are ring fenced at the fund; other losses pass through subject to holding period conditions and transitional attribution of legacy losses to unit holders. Income retained by the fund is deemed credited to unit holders at year end and prescribed statements must be furnished to unit holders and tax authorities to secure transparency and enforcement.
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    Pass-through taxation for business trusts preserves income character and shifts tax consequences to unit holders with reporting duties.
    The clause establishes a statutory pass-through mechanism under which income distributed by business trusts is deemed to retain its original character and proportion in the hands of unit holders, while subjecting the trust's total income to tax at the maximum marginal rate subject to specified withholding provisions; it also deems certain scheduled categories of distributed income taxable on distribution, carves out specified statutory exceptions, and imposes prescribed reporting obligations on payers to unit holders and tax authorities.
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    Pass-through taxation of venture capital income taxes investors as if invested directly, with reporting and deemed-credit safeguards.
    Pass-through taxation requires that income arising to investors from venture capital companies or funds be taxed in the investor's hands as if invested directly, with the fund and payer furnishing prescribed statements to investors and tax authorities; undistributed income is deemed credited to investors at year-end in proportion to entitlement, while income already included on an accrual basis is not taxed again on actual payment; specified investment funds are excluded and key terms are defined in the schedule.
    Act RulesBills
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    Tax on accreted income: transferees and officers may be deemed assessees in default, with liability limited to asset value.
    Clause 352(8) deems the specified person (NPO) and its principal officer or trustee to be assessee in default for unpaid tax on accreted income and applies all recovery provisions of the Act; it also deems a transferee of assets in specified dissolution cases to be an assessee in default in respect of such tax. Clause 352(9) limits the transferee's liability to the extent the asset received is capable of meeting the liability, ensuring proportionality in recovery.
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    Accreted income interest compels prompt tax payment and creates joint personal liability for trustees and principal officers.
    Clause 352(7) imposes simple interest for delayed payment of tax on accreted income, with joint and several liability on the specified person and the principal officer or trustee; interest is computed monthly (any part-month treated as a full month) using an explicit formula, and liable persons are deemed assessee in default to enable statutory recovery mechanisms.
    Act RulesBills
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    Exit tax on accreted income expands triggers and fixes final levy after prescribed valuation and procedural safeguards.
    A tax on accreted income charges NPOs additional income tax at the maximum marginal rate when specified events occur; accreted income equals aggregate fair market value of assets less total liabilities on a specified date, computed under prescribed valuation methods, with exclusions as prescribed. The Assessing Officer must afford a hearing before ordering tax, the bill sets a detailed table of triggering events and payment timelines, and the tax payment is final with no further credit or deduction allowed.
    Act RulesBills
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    Pass-through taxation for securitisation trust income preserves investor-level taxation while mandating reporting and deemed-accrual rules.
    Clause 221 establishes a pass-through taxation regime for income from securitisation trusts, preserving the character and proportion of underlying income in the hands of investors, deeming unpaid accruals as credited on the last day of the tax year to prevent deferral, requiring prescribed statements to investors and tax authorities, and preventing double taxation by excluding income already taxed on accrual from subsequent inclusion on actual payment.
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    Minimum alternate tax definitions shape MAT/AMT computation and Ind AS transition treatment, narrowing tax arbitrage opportunities.
    Clause 206(19) supplies granular definitions aligning MAT/AMT computation with Ind AS convergence, insolvency law and cross statutory terms. Key terms include adjudicating authority (IBC), convergence date, transition amount with specified exclusions, net worth, company classifications, securities, tribunal, unit (IFSC) and year of convergence. These definitions phase in Ind AS transition impacts, harmonize tax and insolvency treatment, clarify eligibility for concessional AMT rates, and reduce tax arbitrage and interpretive disputes compared with the narrower definitions in Section 115JF.
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    Minimum alternate tax exclusions: narrow MAT/AMT to specified taxpayers including life insurers, alternative regime opters, presumptive and small taxpayers.
    Clause 206(18) narrows MAT/AMT applicability by exempting companies with life insurance income, taxpayers who opt for specified alternative tax regimes, persons taxed under special or presumptive computation sections, specified funds identified in the Schedule, and non corporate persons whose adjusted total income falls below the statutory threshold; the exclusions reflect sectoral accounting differences, aim to promote concessional regimes and financial competitiveness, and reduce compliance burdens while requiring clear definitions and anti abuse safeguards.

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      Comparison of Section 143 "Special provisions in respect of certain undertakings in North-Eastern States." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

      3 September, 2025

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      Section 143 Special provisions in respect of certain undertakings in North-Eastern States.

      Income-tax Act, 2025

      At a Glance

      This document is the Bill version titled "Clause 143" within the Income Tax Bill, 2025 (old version). It provides special tax relief for specified undertakings in North-Eastern States by allowing a 100% deduction of profits and gains from eligible businesses for ten consecutive tax years starting from the initial tax year. It matters to taxpayers operating eligible businesses/units in the specified North-Eastern States and to the tax administration. Effective date or enactment date: Not stated in the document.

      Background & Scope

      Statutory hooks: Clause 143 (Bill) proposes a special deduction in respect of profits and gains of certain undertakings in the North-Eastern States. The provision references other statutory provisions - notably section 140(4), (5) and (6) (for re-establishment/reconstruction) and the second proviso to section 80-IB(4) of the Income-tax Act, 1961 - for interaction and limiting rules. Coverage: manufacturing/production of "eligible article or thing", substantial expansion of such manufacture/production, and carrying on specified "eligible business". Definitions provided in the clause include "eligible article or thing", "eligible business", "initial tax year", "North-Eastern States" (list of eight states), and "substantial expansion". The clause sets eligibility conditions and prescribes exclusivity of this deduction vis-`a-vis other Chapter deductions.

      Statutory Provision Mode

      Text & Scope

      The clause allows, where gross total income includes profits and gains from a qualifying undertaking carrying on an eligible activity, a deduction equal to 100% of such profits and gains for ten consecutive tax years commencing with the "initial tax year". The clause applies only to undertakings which have, during the period beginning 1 April 2007 and ending with 1 April 2017, begun or begin in any of the specified North-Eastern States to-(a) manufacture/produce an eligible article/thing; (b) undertake substantial expansion to manufacture/produce an eligible article/thing; and (c) carry on an eligible business. The clause imposes pre-conditions on formation: the undertaking must not be formed by splitting up or reconstruction of an existing business; it must not be formed by transfer to a new business of previously used plant/machinery; an express exception to the first condition exists for re-establishment/reconstruction/revival in the circumstances set out in section 140(4).

      Interpretation

      The clause achieves its purpose by setting an unconditional quantitative benefit (100% deduction) subject to temporal, geographic and formation criteria. The text indicates legislative intent to incentivise industrial and service activity in the North-Eastern States for undertakings started in a discrete historical window (2007-2017). The reference to section 140(4) suggests Parliament intended to align the relief with pre-existing rules governing re-established undertakings, preventing arbitrary exclusion. The exclusivity clause (no deduction under any other section of this Chapter in relation to the profits and gains) evinces an intent to avoid double counting of deductions within the same Chapter.

      Exceptions/Provisos

      Carve-outs and conditions in the clause include:

      • Ineligibility where formation is by splitting up or reconstruction of an existing business (subject to the section 140(4) exception).
      • Ineligibility if formed by transferring previously used plant/machinery to new business (with application of section 140(5) and (6)).
      • Exclusion of certain articles: tobacco and manufactured tobacco substitutes (Ch. 24), pan masala (Ch. 21), plastic carry bags under 20 microns (Ministry of Environment notifications cited), and petroleum products (Ch. 27) produced by refineries.
      • Eligible businesses list excludes lower-tier hotels (below two-star), sets capacity thresholds (nursing homes >=25 beds), and prescribes scope for training institutes and IT hardware manufacturing among other items.
      • Aggregate limit: no deduction under this clause or under the second proviso to section 80-IB(4) of the Income-tax Act, 1961 shall together exceed ten tax years.

      Illustrations

      • Example 1: A new two-star hotel in Assam commencing operations in the initial tax year within the specified period would, subject to meeting formation and other conditions, be entitled to claim a 100% deduction of profits for ten consecutive tax years starting that initial tax year. (Facts such as dates or compliance procedures: Not stated in the document.)
      • Example 2: An information-technology hardware manufacturer in Manipur that undertakes a "substantial expansion" (as defined: >=25% increase in plant & machinery book value measured on the first day of that tax year) within the qualifying period would begin the ten-year deduction period from the "initial tax year" defined as the tax year in which substantial expansion is completed.

      Interplay

      The clause expressly invokes sections 140(4)-(6) for treatment of certain formational exceptions and re-established entities, and it cross-refers to the second proviso to section 80-IB(4) of the Income-tax Act, 1961 for aggregate duration limits. No other Rules/Notifications/Circulars are cited in the clause text. Potential interpretive issues (from the text): the precise effect of the cross-reference to section 140 provisions and operationalising the ten consecutive years where an undertaking previously claimed another relief are to be determined by reference to those provisions; the clause itself does not provide procedural rules for claiming the deduction. (Any administrative procedure or forms: Not stated in the document.)

      Differences between the two provisions and practical impact

      • Source/status: Document 1 is presented as "Section 143 of Income-tax Act, 2025" (enacted provision); Document 2 is labelled "Clause 143 of Income Tax Bill, 2025 - Old Version" (bill text).
        • Practical impact: One is framed as enacted legislation, the other as an earlier bill text; enacted text is authoritative. (This observation is drawn from the document headings.)
      • Temporal phrase regarding the terminal date of the eligible period: Document 1 (Act) states the period as "beginning on the 1st April, 2007 and ending before the 1st April, 2017"; Document 2 (Bill) states "beginning on the 1st April, 2007 and ending with the 1st April, 2017."
        • Practical impact: The Act's "ending before" excludes 1 April 2017 as a qualifying date for undertakings that begin on that day; the Bill's "ending with" would include that day. This difference affects the eligibility of undertakings that commenced on 1 April 2017.
      • Condition/exception structure for re-established/reconstructed undertakings: Document 2 separates an explicit clause (3)(c) stating that condition (a) shall not apply to undertakings formed by re-establishment/reconstruction/revival as referred in section 140(4); Document 1 integrates that exception by parenthetical qualification in clause (3)(a) (mirroring section 140(4) language).
        • Practical impact: Substantively similar, but drafting differs-Document 2 expresses the exception as a standalone clause, which may be clearer in the bill form; the Act embeds the exception within clause (3)(a). No clear substantive divergence in eligibility is evident from the texts themselves.
      • Typographical/wording differences: Document 2 contains a typographical truncation ("bio-technolog;") and slightly different punctuation/word order in certain subsections (e.g., placement of commas and "and").
        • Practical impact: Primarily drafting/typographical; the Act text corrects such errors. Absent substantive amendments, these do not alter legal effect other than clarity.
      • Other differences: Document 1 explicitly states "Irrespective of anything contained in this Act" in subsection (6) and adds minor variations in sub-section labeling (e.g., Document 1 uses "(8) For the purposes of this section,-" then lists definitions).
        • Practical impact: Largely stylistic drafting; material coverage of deductions, duration (ten tax years), ineligibility for other chapter deductions, and the list of eligible businesses/articles remain consistent across both texts.

      Practical Implications

      • Compliance and risk areas: Taxpayers must ensure strict compliance with formation criteria (no splitting/reconstruction except as allowed u/s 140(4)), substantiate that plant and machinery are new (or otherwise satisfy section 140(5)/(6) requirements) and document the date of commencement or completion of substantial expansion to establish the "initial tax year". Absent such documentation, entitlement could be contested by the tax authorities. The clause itself does not state procedural safeguards or evidence standards. (Not stated in the document.)
      • Record-keeping/evidence points: Maintain contemporaneous records evidencing commencement dates, investment in plant & machinery (book values), particulars of any reconstruction or re-establishment, and capacity thresholds (e.g., nursing home bed count). Preserve invoices and fixed asset registers to evidence the 25% increase for "substantial expansion". The clause does not set evidentiary standards or audit procedures. (Not stated in the document.)

      Key Takeaways

      • The provision grants a 100% deduction of profits and gains from eligible activities in North-Eastern States for ten consecutive tax years starting from the "initial tax year".
      • Eligibility is confined to undertakings begun (or substantially expanded) within a discrete window (1 April 2007 to 1 April 2017 as per the Bill text) - timing is determinative; any variance in the terminal date materially affects eligibility for undertakings commencing on 1 April 2017.
      • Formation conditions bar benefits to undertakings formed by splitting/reconstruction or by transfer of used plant/machinery, subject to exceptions aligning with section 140 provisions.
      • Certain goods (tobacco, pan masala, specified plastic bags, refinery products) are excluded; the clause specifies a closed list of eligible businesses with capacity/quality thresholds.
      • The deduction is exclusive: no other deduction under the same Chapter can be claimed in relation to the same profits and gains; aggregate relief periods (this clause + section 80-IB(4) second proviso) cannot exceed ten tax years.
      • The Bill text contains minor drafting defects (e.g., "bio-technolog;") and differs from the Act text in a temporal phrase ("ending with" vs "ending before") and in clause structuring; such differences can have concrete eligibility consequences.
      • Procedural, evidentiary and effective date details are not provided in the Bill text. (Not stated in the document.)

      Full Text:

      Section 143 Special provisions in respect of certain undertakings in North-Eastern States.

      Topics

      ActsIncome Tax