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TMI BlogPresumptive Taxation for Shipping Companies : Clause 226(2)-(6) of the Income Tax Bill, 2025 and Section 115VE of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... international practices, providing certainty and simplification for shipping companies. Clause 226(2) to (6) of Income Tax Bill, 2025 proposes to retain and update this framework. This commentary undertakes a detailed analysis of these provisions, their objectives, practical implications, and compares them with the existing Section 115VE of the Income-tax Act, 1961. The analysis will highlight both continuity and any significant changes, as well as potential areas of ambiguity or concern. Objective and Purpose The legislative intent behind both the 1961 Act's Section 115VE and the 2025 Bill's Clause 226 is to provide a stable, predictable, and internationally competitive tax regime for Indian shipping companies. The tonnage tax s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the Act) are covered, preserving the integrity of the regime. The provision thus excludes the possibility of dual computation (both normal and presumptive) for the same source of income, reinforcing the scheme's exclusivity for eligible income. Clause 226(3): Tonnage Tax Business as a Separate Business Text: "The tonnage tax business shall be considered as a separate business distinct from all other activities or business carried on by the company." This provision is crucial for both compliance and assessment purposes. By treating tonnage tax business as a separate business, the law ensures that income, expenses, and tax computation for shipping operations under the scheme are ring-fenced from other activities of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age tax income, and vice versa. Clause 226(5): Option Requirement for Applicability Text: "The tonnage tax scheme shall apply only if an option to that effect is made as per section 231." This provision establishes the elective nature of the tonnage tax scheme. Companies are not automatically covered; they must make an explicit option, following the process detailed in section 231 of the Bill (which presumably specifies the manner, timing, and conditions for opting in). Section 115VE(4) of the 1961 Act similarly ties the applicability of the scheme to the exercise of an option u/s 115VP. This approach gives companies flexibility, allowing them to evaluate the relative benefits of the tonnage tax scheme versus normal provisions based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies that do not, or cannot, avail the tonnage tax scheme, ensuring that all shipping income is subject to tax, albeit under different regimes. Practical Implications For Shipping Companies * The provisions provide clarity and certainty for shipping companies regarding the computation and taxability of their income. By allowing companies to opt into a presumptive regime, they can better forecast tax liabilities, simplify compliance, and potentially reduce litigation arising from complex income attribution across international waters. * The requirement for separate accounting and the ring-fencing of tonnage tax business ensures that companies must maintain robust internal controls and documentation. Failure to do so could result in dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments, * Make the scheme elective, contingent on a formal option, and * Provide for computation under normal provisions for non-opting companies. The language and sequence of provisions are nearly identical, indicating legislative intent to carry forward the established regime with minimal change. Notable Differences and Updates While the core framework remains the same, there are some differences worth noting: * Cross-References: The 2025 Bill refers to section 231 (for the option), whereas the 1961 Act refers to section 115VP. This is a structural change, reflecting the reorganization and renumbering of provisions in the new Bill. * Terminology: The Bill uses phrases such as "tonnage tax company" and "qualifying ships," which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts a faithful and considered continuation of the tonnage tax regime established under Section 115VE of the Income-tax Act, 1961. The provisions maintain the elective, ring-fenced, and presumptive nature of the scheme, providing clarity and administrative simplicity for both taxpayers and tax authorities. While the Bill does not introduce radical changes, its structural updates and potential for further clarification in related sections may address operational issues that have arisen in the implementation of the 1961 Act. As shipping remains a strategic sector, the continued availability of the tonnage tax scheme is likely to be welcomed by industry stakeholders. Future reforms may focus on refining definitions, streamlining opt-in/o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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