Limit for charter in of tonnage - Section 115VV - Income Tax - Ready Reckoner - Income Tax

Limit for charter in of tonnage - Section 115VV Read with Rule 11S Limit upto which qualifying ships can be chartered in by a tonnage tax company In the case of every company which has opted for tonnage tax scheme, not more than 49% of the net tonnage of the qualifying ships operated by it during any previous year shall be chartered in. [ Section 115VV(1) ] The proportion of net tonnage in respect of a previous year shall be calculated based on the average of net tonnage during that previous year in such manner as may be prescribed in consultation with the Director-General of Shipping. [ Section 115VV(2) ] As per Rule 11S , the average of net tonnage shall be computed by dividing total number of chartered-in-ton days by the total number of ton days operated by the company. [ Section 115VV(3) ] Consequence if the net tonnage of the chartered in ship exceeds 49% Where the net tonnage of ships [ chartered in or inland vessels, as the case may be, chartered in (Substituted vide Finance Act, 2025 W.e.f. 01.04.2026) ] exceeds the limit of 49% during any previous year, the total income of such company in relation to that previous year shall be computed as if the option for tonnage tax scheme does not have effect for that previous year. [ Section 115VV(4) ] Where such limit had exceeded in any two consecutive previous years, the option for tonnage tax scheme shall cease to have effect from the beginning of the previous year following the second consecutive previous year in which the limit had exceeded. [ Section 115VV(5) ] Note:- 1. For the purposes of this section, the term chartered in shall exclude a ship [ or inland vessel, as the case may be, (Inserted vide Finance Act, 2025 W.e.f. 01.04.2026) ] chartered in by the company on bareboat charter- cum -demise terms. 2. Calculation of average of net tonnage for computing the limit for charter-in (illustrative example): Ship No. Ownership/type of operation Net Tonnage No. of days Ton-days Operation Charter- in 1. Qualified ship chartered-in on BBCD basis 11,000 365 40,15,000 - 2. Owned qualified ship 15,000 365 54,75,000 - 3. Owned qualified ship but chartered out on BBC basis to another company for more than 3 years 20,000 365 0 - 4. Qualified ship chartered-in for 5 years on BBC basis 12,000 365 43,80,000 43,80,000 5. Qualified owned ship - time chartered- out 10,000 365 36,50,000 - 6. Qualified ship - voyage chartered-in 15,000 60 9,00,000 9,00,000 7. Qualified ship - time chartered-in 20,000 120 24,00,000 24,00,000 8. Qualified ship - time chartered in 15,000 365 54,75,000 54,75,000 9. Qualified ship-chartered-in (slot charter) 5,000 365 18,25,000 18,25,000 10. Qualified ship-chartered-in (space charter) 6,000 365 21,90,000 21,90,000 Total 3,03,10,000 1,71,70,000 Percentage of tonnage chartered in: (1,71,70,000/3,03,10,000) X 100 = 56.65%. Since the percentage of net tonnage chartered in is more than 49%, as per section 115VV, the company s option for tonnage tax scheme will cease to have effect.