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TMI BlogComputation of Taxable income of the shipping companies based on Tonnage: Clause 227(1)-(6) of the Income Tax Bill, 2025 Vs. Section 115VG of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... b-clause in depth, interpreting its practical and legal implications, and comparing it with the corresponding provisions in section 115VG of the Income-tax Act, 1961. The analysis aims to highlight continuities, departures, and potential legal or operational consequences, while also considering the broader policy rationale and industry impact. Objective and Purpose The tonnage tax regime was introduced to simplify the taxation of shipping companies, reduce disputes, and enhance the competitiveness of Indian shipping businesses. The core objective is to provide certainty and ease of compliance by linking taxable income to the tonnage capacity of qualifying ships, rather than the complex and often volatile profits of shipping operations. This system aligns Indian law with international best practices, facilitating global trade and investment in the shipping sector. Clause 227 of the Income Tax Bill, 2025, seeks to refine and modernize the computation of tonnage income, taking into account developments in maritime operations and aligning with the evolving legal and policy landscape. The provision aims to ensure clarity, fairness, and administrative efficiency, while maintaining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ips during the tax year. Comparison with Section 115VG(2): Section 115VG(2) adopts an almost identical methodology, specifying that tonnage income is the daily tonnage income multiplied by the number of days in the previous year (or the relevant part thereof). The only substantive difference lies in the terminology: the 1961 Act refers to "previous year," while the 2025 Bill uses "tax year," reflecting an anticipated harmonization of terminology across tax statutes. Substantively, both provisions ensure proportionality and fairness in the computation of tonnage income. Clause 227(3): Determination of Daily Tonnage Income Text: "For the purposes of sub-section (2), the daily tonnage income of a qualifying ship having tonnage referred to in column A of the Table below shall be the amount specified in the corresponding entry in column B thereof." Table Analysis: * Sl. No. Qualifying ship having net tonnage Amount of daily tonnage income 1 Up to 1,000 Rs. 70 for each 100 tons 2 Exceeding 1,000 but not more than 10,000 Rs. 700 plus Rs. 53 for each 100 tons exceeding 1,000 tons 3 Exceeding 10,000 but not more than 25,000 Rs. 5,470 plus Rs. 42 for each 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 115VX. The 2025 Bill thus consolidates the certification and computation provisions within the same section, potentially enhancing clarity and ease of reference. Clause 227(5): Rounding Off Tonnage Text: "The tonnage shall be rounded off to the nearest multiple of hundred tons and for this purpose any tonnage consisting of kilograms shall be ignored and if the tonnage so rounded off, as per clause (a), is not a multiple of hundred, then, if the last figure in that amount is- (a) fifty tons or more, the tonnage shall be increased to the next higher tonnage; (b) less than fifty tons, the tonnage shall be reduced to the next lower tonnage, which is a multiple of hundred and the tonnage so rounded off shall be the tonnage of the ship for the purposes of this section." Interpretation and Implications: This sub-clause prescribes a standardized method for rounding off tonnage to the nearest hundred tons, with precise rules for upward or downward adjustment based on the last two digits. Ignoring kilograms ensures that only whole tons are considered, reducing administrative complexity. This approach eliminates minor discrepancies and ensures uniformity in the computation of tonn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5VG of the Income-tax Act, 1961 reveals that the two sets of provisions are, in substance and structure, virtually identical. The following points of comparison are noteworthy: * Continuity of Policy: The 2025 Bill maintains the core features of the tonnage tax regime, including ship-wise aggregation, daily tonnage income slabs, certification requirements, rounding rules, and the bar on deductions. * Modernization and Clarification: The 2025 Bill consolidates references (e.g., certification requirements) and updates terminology (e.g., "tax year" vs. "previous year"), reflecting efforts to modernize and harmonize tax legislation. * Inclusion of Contemporary Shipping Practices: Both provisions explicitly include "deemed tonnage" for slot charters and similar arrangements, demonstrating responsiveness to industry evolution. * Administrative Efficiency: The formulaic and non-discretionary nature of the computation minimizes compliance burdens and potential for disputes. * Potential for Future Reform: While the provisions are robust and widely accepted, the reliance on prescribed rules for deemed tonnage computation and certification leaves room for future regulatory updates a ..... 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