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Act Rules Bills
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Tonnage tax opting procedure ensures time-bound approval and procedural fairness under the updated legislative framework.
A qualifying company must apply in the prescribed form to the Joint Commissioner within the statutory window; the Commissioner may call for documents, must afford an opportunity of being heard before refusing, and must communicate a written order within a set time measured from the end of the processing quarter. On approval, the tonnage tax regime applies from the tax year in which the option is exercised, with transitional provisions for IFSC units and further clauses governing duration, cessation, renewal and a bar on re-entry.
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Exclusion of book profits: tonnage tax income is removed from MAT computation to preserve the presumptive shipping regime.
Clause 228(16) excludes the book profit or loss derived from the activities of a tonnage tax company, as defined in Clause 228(1), from the company's book profit for the purposes of section 206, thereby preventing MAT from applying to profits attributable to qualifying core and incidental shipping activities; the exclusion operates alongside detailed provisions on caps for incidental income, allocation of costs and depreciation, treatment of non qualifying ships, and transfer pricing adjustments.
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Capital gains on qualifying ships taxed under tonnage tax regime with WDV computed for block of qualifying assets.
Profits or gains on transfer of capital assets forming part of the block of qualifying ships are chargeable to income-tax, with capital gains computed under the capital gains provisions specified in the Bill. For that computation, references to "written down value of the block of assets" are to be read as the "written down value of the block of qualifying assets", and that WDV is to be determined by the method prescribed in sub-section (2) of Clause 229.
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Tonnage tax loss set off limited to shipping income; pre option losses deemed set off and apportionment must be reasonable.
Clause 230(2)-(4) (and mirror Section 115VM) deem pre option losses attributable to the tonnage tax business to have been set off against relevant shipping income while under the tonnage tax regime, bar their set off against non shipping income after opting in, and require any necessary apportionment to be made on a reasonable basis, creating documentary and evidentiary obligations and potential disputes over apportionment and the definition of relevant shipping income.
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Tonnage tax exclusion: carry forward and deductions barred, creating a self contained computation regime for shipping companies under new bill
Clause 230(1) creates a self contained tonnage tax computation by deeming all business losses, allowances and deductions to have been given full effect in their year of origin, prohibiting carry forward or set off of shipping business losses once under the tonnage regime, excluding general chapter based deductions from tonnage profits, and requiring written down values of assets to be computed as if depreciation had been claimed and allowed each relevant year.
Act Rules Bills
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Depreciation under tonnage tax: explicit WDV allocation formulas clarify asset classification and continuity of depreciation claims.
Clause 229(1)-(7) mandates that, on entering the tonnage tax regime, depreciation be computed on the written down value attributable to qualifying ships by dividing the existing block WDV between qualifying and non qualifying assets using explicit proportional formulas; separate qualifying asset blocks are created, WDV is transferred proportionally upon reclassification, intra year depreciation is apportioned by days of use, and the resulting WDV blocks are deemed carried forward from the preceding year to preserve continuity.
Act Rules Bills
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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.
Act Rules Bills
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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.
Act Rules Bills
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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.
Act Rules Bills
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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.
Act Rules Bills
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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.
Act Rules Bills
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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.
Act Rules Bills
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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.
Act Rules Bills
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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.
Act Rules Bills
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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.
Act Rules Bills
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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 Rules Bills
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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 Rules Bills
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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.
Act Rules Bills
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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.
Act Rules Bills
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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.

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Comparison of section 511 "Furnishing of report in respect of international group." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

17 September, 2025

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Section 511 Furnishing of report in respect of international group

Income-tax Act, 2025

At a Glance

The document reproduces Clause 511 - Income Tax Bill, 2025 - Old Version, setting out reporting obligations for constituent entities of international groups (country-by-country reporting style). It matters for multinational groups with Indian resident constituent entities - both taxpayers (resident constituent entities, parent entities, alternate reporting entities) and the tax administration. Effective date or commencement is Not stated in the document.

Background & Scope

Statutory hooks: Clause 511 sits within miscellaneous provisions of the Income Tax Bill, 2025 and proposes a standalone reporting obligation for "international groups". The clause creates duties to notify the prescribed income-tax authority and to furnish reports containing consolidated and constituent-level financial and operational information. Definitions and scope are provided within the clause itself. Any subordinate rules, forms, timelines and thresholds are to be set out "as prescribed" (delegated rule-making).

Statutory Provision Mode

Text & Scope

Clause 511 imposes three principal obligations:

  • Notification (sub-section (1)): Every constituent entity resident in India that is part of an international group whose parent is not resident in India must notify the prescribed income-tax authority in the prescribed form and manner by the prescribed date whether it is the alternate reporting entity and/or provide details of the parent or alternate reporting entity and their jurisdictions.
  • Reporting (sub-section (2)): Every parent entity or alternate reporting entity resident in India must, for each reporting accounting year, furnish a report to the prescribed income-tax authority within twelve months from the end of that reporting accounting year, in the prescribed form and manner.
  • Fallback reporting (sub-section (4)): Where an Indian resident constituent entity is not the parent/alternate reporting entity, it must furnish the report within a prescribed period if the parent is resident in a jurisdiction that (a) is not obligated to file such a report; (b) lacks an agreement with India for exchange of the report; or (c) has experienced a "systemic failure" and that failure has been intimated by the prescribed income-tax authority.
  • Sub-sections (3) and (6) detail report content and exceptions; (7) grants the authority the power to issue notices and require supporting information; (8) provides a consolidated-revenue threshold exemption; and (9) permits application "as prescribed".

Interpretation

The text indicates a legislative intent to implement a country-by-country reporting regime targeted at large international groups with constituent entities resident in India. The use of express definitions (e.g., "consolidated financial statement", "parent entity", "constituent entity", "reporting accounting year") demonstrates an intent to align reporting obligations with financial reporting and with international standards for transfer pricing transparency. Several interpretive principles are signalled by the text: alignment with parent-jurisdiction financial periods, deference to prescribed forms and procedures, and reliance on intergovernmental agreements for automatic exchange.

Exceptions/Provisos

Key carve-outs and conditions:

  • Threshold exemption (sub-section (8)): The section will not apply if the total consolidated group revenue for the preceding accounting year does not exceed the prescribed amount - the specific monetary threshold is Not stated in the document.
  • Non-application where an alternate reporting entity files in its jurisdiction and certain conditions are met (sub-section (6)): Conditions include the foreign report being required by local law, presence of an exchange agreement between that country and India, absence of any systemic failure communicated by the Indian authority, written designation of the alternate reporting entity, and prior notification under sub-section (1). These are cumulative preconditions.
  • Fallback allocation where multiple Indian resident constituent entities exist (sub-section (5)): If more than one Indian constituent entity exists, any one designated entity may furnish the report provided the group has designated that entity and the information has been conveyed in writing to the prescribed authority.

Illustrations

  • Example 1: A multinational group with a non-resident parent and one Indian subsidiary that is designated as the alternate reporting entity must notify the income-tax authority in India and, if resident as alternate reporting entity, file the report within 12 months of the reporting accounting year end. (All procedural details - forms/timelines - are Not stated in the document.)
  • Example 2: An Indian permanent establishment (PE) of a foreign enterprise that prepares separate financial statements as a PE falls within "constituent entity" and, if the foreign parent's jurisdiction neither files nor exchanges reports with India, that Indian PE may be required to furnish the report within the prescribed period. (Precise prescribed period is Not stated in the document.)

Interplay

The clause expressly contemplates interaction with:

  • Section 159(1) or (2) (via the definition of "agreement") - signalling reliance on specified intergovernmental agreements for exchange.
  • Section 173(c) (for the meaning of "permanent establishment").
  • Prescribed rules/guidelines/conditions that remain to be issued for form, manner, dates and thresholds. The document does not reproduce any subordinate rules or forms. Specific interactions with existing transfer-pricing or information-exchange regimes are Not stated in the document beyond the express reference to agreements for exchange.

Differences between the Document 1 "Section 511 of Income-tax Act, 2025" and Document 2 "Clause 511 - Income Tax Bill, 2025 - Old Version"

  • Prescription wording: Document 1 repeatedly uses the phrase "as may be prescribed" (e.g., sub-sects (1), (2), (3), (9)), whereas Document 2 often uses the shorter "as prescribed".
    • Practical impact: negligible substantive difference in content; "as may be prescribed" can imply delegation to subordinate legislation, while "as prescribed" is more neutral - both indicate delegated rule-making. In practice, stakeholders should expect rules/guidelines to be issued regardless.
  • Minor phrasing differences: e.g., Document 1 in sub-section (4)(c) reads "where there has been a systemic failure of the country or territory and such failure has been intimated by the prescribed income-tax authority to such constituent entity" while Document 2 reads "where there has been a systemic failure and such failure has been intimated by the prescribed income-tax authority to such constituent entity."
    • Practical impact: none substantive; the enacted text in Document 1 clarifies that the systemic failure is of the foreign country/territory, but Document 2's meaning would be read the same way in context.
  • Overall: there are no material substantive differences in obligations, definitions, thresholds or exceptions between the two texts provided. The principal practical impact arises from the change in status from a Bill clause (Document 2) to an enacted statutory section (Document 1) and minor drafting refinements that preserve the same legal obligations and delegated-rulemaking expectation.

Practical Implications

  • Compliance and risk areas: Indian resident constituent entities of international groups must track whether their group's parent is resident outside India, determine whether they are designated as alternate reporting entity, and ensure timely notification to the prescribed income-tax authority. Parent or alternate reporting entities resident in India must prepare and file the prescribed report within 12 months of the reporting accounting year end. Failure to notify or file may expose entities to compliance actions under the Act and to information requests under sub-section (7).
  • Record-keeping/evidence: The text requires aggregated country-level financial and operational metrics and constituent-level details; accordingly, entities will need robust consolidated financial statements, country allocation methodologies, documentation of designation as alternate reporting entity, and written communications to the Indian authority. The precise content and format are "as prescribed" and therefore entities must monitor subordinate instruments for technical compliance requirements (not specified in the Bill text).

Key Takeaways

  • Clause 511 establishes country-by-country style reporting obligations for international groups with Indian resident constituent entities.
  • There is a dual duty: initial notification by Indian resident constituent entities (where parent is non-resident) and annual reporting by Indian parent/alternate reporting entities within 12 months of reporting accounting year end.
  • Fallback reporting obligations apply to Indian resident constituent entities if the parent's jurisdiction does not file, does not exchange, or has a communicated systemic failure.
  • Exemptions hinge on a consolidated revenue threshold for the preceding year; the specific threshold is to be prescribed and is Not stated in the document.
  • The power to request supporting information and documents within defined timelines is provided to the prescribed income-tax authority.
  • Many operational details (form, manner, prescribed dates, exact thresholds) are left to delegated rules; stakeholders must monitor rule-making for compliance specifics.

Full Text:

Section 511 Furnishing of report in respect of international group

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Acts Income Tax