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TMI BlogNavigating Special Tax Regimes for Shipping : Clause 225 of the Income Tax Bill, 2025 Vs. Section 115VA of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... provide a stable and competitive fiscal environment for shipping businesses. Section 115VA of the Income-tax Act, 1961, was a cornerstone of this regime, offering an alternative mechanism for computing profits and gains from the business of operating qualifying ships. With the introduction of the Income Tax Bill, 2025, Clause 225 seeks to continue and possibly refine this special treatment. This commentary provides a thorough legal analysis of Clause 225, examining its objectives, detailed provisions, and practical implications, followed by a comparative analysis with the existing Section 115VA. The discussion also addresses potential ambiguities, compliance concerns, and areas for further legislative or judicial attention. 2. Object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational use. The provision overrides sections 26 to 54 of the Bill, which generally deal with the computation of income under the head "Profits and Gains of Business or Profession," deductions, and other related matters. By doing so, Clause 225 establishes a self-contained code for shipping companies opting for the special regime. 3.2. Optional Scheme Sub-clause (a) grants shipping companies the option to compute their income as per the provisions of the relevant part of the Bill, rather than under the standard provisions applicable to other businesses. This optionality is crucial; it allows companies to assess whether the tonnage tax regime or the regular system is more beneficial in their specific circumstances. The exercise of the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision refers to qualifying ships but does not elaborate on the criteria. The definition and scope are presumably provided elsewhere, but clarity is essential to avoid disputes. * Option Exercise Mechanism: The provision is silent on how and when the option is to be exercised, the duration for which it is binding, and the consequences of withdrawal. These are typically addressed in rules or subsequent clauses. * Interaction with Other Provisions: The deeming provision may have implications for set-off and carry-forward of losses, deductions, and MAT (Minimum Alternate Tax) applicability, which require careful examination in the context of the entire Act. 4. Practical Implications Clause 225 has significant practical ramifications ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial regime, * Contain a non obstante clause overriding general business income computation provisions, and * Deem such income as business profits for tax purposes. 5.2. Scope of Override Section 115VA overrides sections 28 to 43C of the 1961 Act, which cover the computation of business income, deductions, and allowances. Clause 225 overrides sections 26 to 54 of the Income Tax Bill, 2025. The broader range (26 to 54) may reflect a reorganization of the Bill or an intention to subsume additional sections under the override. This could potentially have implications for the interaction with other provisions relating to business income, deductions, and capital gains. 5.3. Reference to "This Part" vs. "This Chapter" Section 115VA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including the United Kingdom, Singapore, and Greece, have similar regimes. The Indian approach, as reflected in both Section 115VA and Clause 225, aligns with international best practices, focusing on simplicity, certainty, and competitiveness. Comparatively, the Indian regime's optionality and the definition of qualifying ships are similar to those in the UK. However, differences may exist in the computation formulas, qualifying criteria, and anti-abuse provisions, which are determined by the respective legislative frameworks. 5.7 Comparative Table : Structure and Substantive Comparison Aspect Clause 225 of the Income Tax Bill, 2025 Section 115VA of the Income-tax Act, 1961 Non-Obstante Clause "Irrespective of anything con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and Scope of "Qualifying Ships": Precise criteria regarding age, tonnage, registration, and operational use. * Option Exercise and Lock-in: Detailed procedure, binding period, and consequences of withdrawal. * Interaction with Losses and Deductions: Treatment of brought forward losses, unabsorbed depreciation, and other allowances. * Applicability of MAT or Other Special Provisions: Whether companies under the tonnage tax regime are subject to MAT or exempt. * Transitional Provisions: Treatment of companies transitioning from the old regime to the new Bill. 8. Conclusion Clause 225 of the Income Tax Bill, 2025, represents a continuation of India's commitment to providing a competitive and stable fiscal framework for its s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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