Section 230 Exclusion of deduction, loss, set off, etc.

Income-tax Act, 2025

At a Glance

Clause 230 (Old Version) is a provision in the Income Tax Bill, 2025 dealing with exclusion of deduction, loss and set-off for companies opting for the tonnage tax scheme. It prescribes that, for a relevant tax year under the tonnage tax regime, certain deductions and carry-forward/set-off of losses relating to the business of operating qualifying ships are to be excluded. The provision affects tonnage tax companies (taxpayers) and the tax department; the effective/commencement date is Not stated in the document.

Background & Scope

Statutory hooks: Clause 230 is located in the Bill under "Special provisions relating to income of shipping companies" and operates "Irrespective of anything contained in any other provision of this Act" for computation of tonnage income of a tonnage tax company for any tax year in which it is chargeable to tax as per the Part addressing tonnage tax. The clause addresses interplay with sections 28 to 52, sections in Chapter VIII, section 33 (depreciation), section 112 and specific subsections of sections 108, 109, 112 and 116. Definitions of "tonnage tax company," "relevant tax year," "qualifying ships," "relevant shipping income" and other terms are Not stated in the document.

Statutory Provision Mode

Text & Scope

Clause 230 prescribes the following rules for computing tonnage income of a company that has elected the tonnage tax regime for a tax year (the "relevant tax year"):

• Sections 28 to 52 shall apply as if every loss, allowance or deduction referred to therein and relating to or allowable for any of the relevant tax years had been given full effect to for that tax year itself.
• No loss referred to in section 108(1) or (2)(a) or 109 or 112(1) or 116(1), insofar as such loss relates to the business of operating qualifying ships of the company, shall be carried forward or set off where such loss relates to any of the tax years when the company is under the tonnage tax scheme.
• No deduction shall be allowed under Chapter VIII in relation to the profits and gains from the business of operating qualifying ships.
• In computing depreciation allowance u/s 33, the written down value of any asset used for the purposes of the tonnage tax business shall be computed as if the company has claimed and has been actually allowed the deduction in respect of depreciation for the relevant tax years.
• Section 112 shall apply in respect of losses that have accrued to a company before its option for the tonnage tax scheme and which are attributable to its tonnage tax business, as if such losses had been set off against the relevant shipping income in any of the tax years when the company is under the tonnage tax scheme.
• The losses referred to in sub-section (2) shall not be available for set off against any income other than relevant shipping income in any tax year beginning on or after the company exercises its option u/s 231.
• Any apportionment necessary to determine the losses referred to in sub-section (2) shall be made on a reasonable basis.

Interpretation

• The text establishes a statutory scheme that isolates the tax treatment of tonnage income and the losses/deductions related to the qualifying shipping business. The provision operates by prescribing that prior rules on losses and deductions (sections 28-52) be treated as having been applied within each relevant year, and by excluding the carry-forward or cross-set-off of specific categories of losses once the company is under the tonnage tax option.
• Legislative intent, as suggested by the Bill's accompanying explanatory line, is to create a self-contained taxing regime for qualifying shipping operations so that the benefits of pre-existing loss positions and general deductions are neutralised or confined within the tonnage tax calculation. However, the clause itself (as reproduced) does not contain an explicit statement of legislative policy beyond the operative exclusions.

Exceptions/Provisos

The clause contains specific carve-outs and conditions:

• Section 112 is applied in a particular manner to pre-option losses attributable to the tonnage tax business, treating such losses as if they had been set off against relevant shipping income in any of the tax years when the company is under the tonnage tax scheme (sub-section (2)).
• Those pre-option losses (as in sub-section (2)) are thereafter prohibited from being set off against any other income except relevant shipping income for tax years beginning on or after the company exercises its option u/s 231 (sub-section (3)).
• Any apportionment required to identify the losses attributable to the tonnage tax business is to be made "on a reasonable basis" (sub-section (4)).

Illustrations

• Example 1: A company that operated qualifying ships and had incurred losses in year X before opting for tonnage tax-under sub-section (2), those pre-option losses attributable to the qualifying ships are to be treated as if set off against relevant shipping income in the years the company is under the tonnage tax scheme. Specific numeric computation or mechanics are Not stated in the document.
• Example 2: A company under the tonnage tax regime cannot carry forward or set off a loss that falls within the listed sections (108(1), 108(2)(a), 109, 112(1), 116(1)) to offset non-shipping income while under the scheme; exact treatment for partial years or mixed business incomes is Not stated in the document.

Interplay

The clause expressly cross-references and modifies the operation of multiple provisions: sections 28-52 (presumably general heads of income/deductions), Chapter VIII (deductions), section 33 (depreciation), section 112 (set-off of losses), and section 231 (exercise of option). It directs that certain general provisions be treated as having been given full effect within the relevant tax year and prevents the extension of certain loss benefits beyond the sphere of relevant shipping income. Any further interaction with other statutory provisions, rules, notifications or judicial interpretations is Not stated in the document.

Differences between the two provisions and practical impact

• Reference to section 108(2): Document 2 (Clause 230 of the Income Tax Bill, 2025 - (Old Version)) refers to "section 108(1) or (2)(a)". Document 1 (Section 230 of the Income-tax Act, 2025) refers instead to "section 108(1) or (2)(b)".
  • Practical impact: this is a change in the specific sub-paragraph of section 108 that is excluded from carry-forward/set-off while under the tonnage tax scheme. The practical consequence is that a different subset of losses within section 108(2) will be excluded under the enacted version compared to the Bill version; the precise nature of that subset is not described in the provided texts.
• Reference to section 109: Document 2 cites "109" (no subsection specified). Document 1 cites "109(1)".
  • Practical impact: the enacted text limits the exclusion to losses falling under subsection (1) of section 109, whereas the Bill text (as presented) arguably encompassed section 109 in its entirety. This narrows the exclusion in the enacted provision relative to the Bill (to the extent different subsections exist in section 109), but the content of those subsections is not included in the documents.
• Document status and accompanying note: Document 2 is expressly identified as "Clause 230" of the Income Tax Bill, 2025 - Old Version - and includes a short explanatory sentence: "Clause 230 of the Bill seeks to provide for general exclusion of losses, deductions and set off including the accrued losses incurred or claimed prior to opting of tonnage tax scheme by the company." Document 1 is presented as "Section 230 of Income-tax Act, 2025" (enacted text) and omits that explanatory sentence.
  • Practical impact: Document 2 is draft/bill text accompanied by a policy note; Document 1 is framed as the enacted section without the note. The explanatory sentence in the Bill version signals legislative intent but is not normative text; its absence in the enacted text means such explanatory phrasing is not part of the statute as reproduced.
• Other textual differences: Document 1 uses "section 109(1)" and includes the phrase "in so far as such loss relates to the business of operating qualifying ships of the company," in the same clause as Document 2. Apart from the subsection-level differences noted above and minor formatting/heading differences (Clause vs Section; Bill vs Act), the remainder of the language in the two texts appears substantively the same as presented.

Practical Implications

• Compliance and risk areas: A tonnage tax company must ensure that losses specified by reference to sections 108, 109, 112 and 116 that relate to qualifying ships are not carried forward or set-off while under the tonnage tax regime. Taxpayers will need to identify which of their historical losses fall within the referenced subsections and whether those losses are attributable to the qualifying shipping business. The textual requirement to treat sections 28-52 as if deductions had been given full effect in the relevant tax year also requires contemporaneous computation/documentation. The Bill's explanatory sentence confirms an intention to exclude accrued losses claimed prior to opting; however, operational details are Not stated in the document.
• Record-keeping/evidence points: The provision's restriction on carry-forward/set-off and the requirement to apportion pre-option losses "on a reasonable basis" imply a need for clear records demonstrating the attribution of losses to qualifying ships, the computations showing deductions treated as given effect in the relevant year, and the basis of any apportionment. Specific documentary standards, evidentiary thresholds or forms are Not stated in the document.

Key Takeaways

• Clause 230 confines the tax consequences of qualifying shipping operations under the tonnage tax option by excluding certain losses, deductions and set-offs from cross-utilisation outside the shipping income stream.
• The clause mandates that general loss/deduction provisions (sections 28-52) be treated as if applied fully within each relevant tonnage tax year.
• Pre-option losses attributable to the tonnage tax business are to be treated as if set off against shipping income while under the scheme, but thereafter cannot be set off against other income for subsequent years beginning on or after the option (section 231) is exercised.
• Apportionment of pre-option losses must be made on a "reasonable basis," imposing a factual allocation requirement without prescribing a formula.
• The Bill text (Old Version) contains specific cross-references to subparagraphs of other sections; differences at the sub-section level between Bill and enacted text (where present) alter the precise scope of excluded losses.

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Full Text:

Section 230 Exclusion of deduction, loss, set off, etc.

Exclusion of deductions and losses: tonnage tax confines shipping losses within the tonnage regime, barring cross set off. The tonnage tax regime confines tax treatment of qualifying shipping operations by treating general loss and deduction provisions as having been applied within each relevant tonnage tax year, prohibiting carry forward or set off of specified losses relating to qualifying ships while under the scheme, and requiring depreciation and pre option loss treatment to reflect deductions as if claimed and allowed; any apportionment of pre option losses must be made on a reasonable basis.