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TMI BlogSimplified and concessionary method of taxation based on the net tonnage of qualifying ships, rather than on actual profits : Clause 228(1)-(13) of the Income Tax Bill, 2025 Vs. Section 115VI of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ctable, simplified, and concessionary method of taxation based on the net tonnage of qualifying ships, rather than on actual profits. The Income Tax Bill, 2025, through Clause 228, seeks to further refine and update the statutory provisions governing the computation of relevant shipping income and its exclusion from book profits. This clause is intended to replace and update the corresponding provisions u/s 115VI of the Income-tax Act, 1961. Both Clause 228 and Section 115VI set out the core and incidental activities that constitute relevant shipping income, the treatment of income from non-qualifying ships, the handling of related party transactions, and the procedural mechanisms for government notifications and parliamentary oversight. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed incidental activities (sub-section (7)). Section 115VI(1): Similarly defines "relevant shipping income" as profits from core activities (sub-section (2)) and prescribed incidental activities (sub-section (5)). Comparison & Analysis: * Both provisions mirror each other in structure and substance, with minor drafting differences. The Bill uses "as prescribed for the purpose" for incidental activities (sub-section (7)), while the Act uses "which may be prescribed for the purpose" (sub-section (5)). * Both include a limitation: if income from incidental activities exceeds 0.25% of core activity turnover, the excess is taxable under general provisions, not under the tonnage tax regime. This ensures that the regime is not misused for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalysis: * Both provisions give the government flexibility to adapt the regime to changing industry practices or to curb abuse. * The notification mechanism ensures transparency and parliamentary oversight. 4. Parliamentary Oversight of Notifications: Sub-section (6) in Bill, Sub-section (4) in Act Clause 228(6): Requires every notification to be laid before Parliament, subject to modification or annulment. Section 115VI(4): Provides the same mechanism. Comparison & Analysis: * Both provisions reinforce legislative control over delegated legislation, ensuring accountability. * The process for laying notifications and the effect of parliamentary modification/annulment are identical. 5. Incidental Activities: Sub-section (7) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;s power. Comparison & Analysis: * The Bill splits these into three sub-sections for clarity, but the substance remains unchanged. * This anti-avoidance measure prevents manipulation of profits by undervaluing or overvaluing inter-business transfers. * The Assessing Officer's discretion is a crucial safeguard against complex or opaque transactions. 8. Transfer Pricing/Deemed Profits: Sub-section (12) in Bill, Sub-section (8) in Act Clause 228(12): Empowers the Assessing Officer to adjust income if business with related parties produces more than ordinary profits, to ensure only reasonable income is taxed under the regime. Section 115VI(8): Contains an identical provision. Comparison & Analysis: * This is an anti-abuse p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to withstand appellate review. For Policymakers: * The regime balances the need to support the shipping industry with safeguards against revenue loss through abuse. * The delegated powers and parliamentary oversight mechanisms ensure ongoing adaptability and accountability. Comparative Analysis: Clause 228 vs. Section 115VI Continuities: * The overall structure, definitions, and mechanisms are fundamentally unchanged, preserving legal continuity and minimizing disruption to the industry. * Key thresholds (e.g., 0.25% cap on incidental income), anti-avoidance provisions, and procedural safeguards are retained. * The expanded reference to "inland vessel-related activities" in both provisions reflects recent legislative amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination of "market value" for inter-business transfers can be contentious, especially for unique or specialized assets/services. * The threshold for incidental income (0.25%) may require periodic review to reflect industry realities. * The application of the "more than ordinary profits" test in related party transactions may require further guidance to ensure uniformity. Conclusion Clause 228 of the Income Tax Bill, 2025, represents a careful evolution of the tonnage tax regime, largely retaining the core framework of Section 115VI of the Income-tax Act, 1961, while introducing greater clarity, modernized language, and explicit procedural safeguards. The regime continues to balance the need for a competitive and attractive tax env ..... X X X X Extracts X X X X X X X X Extracts X X X X
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