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TMI BlogCompliance Requirements under India's Tonnage Tax Regime : Clause 232(21) of Income Tax Bill, 2025 vs. Section 115VW of the Income Tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicability of the scheme. This clause is the successor to Section 115VW of the Income-tax Act, 1961, which, together with Rule 11T of the Income-tax Rules, 1962, established the framework for maintenance and audit of accounts by tonnage tax companies. This commentary provides an in-depth legal analysis of Clause 232(21), examining its structure, purpose, and implications. It further compares and contrasts the new provision with Section 115VW and Rule 11T, highlighting continuities, changes, and potential legal and practical ramifications for stakeholders in the shipping industry. Objective and Purpose The legislative intent behind both the earlier Section 115VW and the proposed Clause 232(21) is to ensure transparency, accountabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust maintain separate books of account for its business of operating qualifying ships. This requirement is crucial for the following reasons: * Segregation of Income: It ensures that income derived from qualifying shipping activities is clearly distinguishable from income arising from other business activities, which may not be eligible for tonnage tax treatment. * Prevention of Abuse: By maintaining distinct accounts, companies are prevented from artificially inflating shipping income or misallocating expenses, thereby safeguarding the integrity of the regime. * Ease of Audit: Separate books facilitate easier and more effective auditing by tax authorities, reducing the risk of disputes and enhancing compliance. 2. Furnishing of Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. This harmonization ensures administrative consistency. Practical Implications For Shipping Companies * Compliance Burden: Companies must invest in robust accounting systems capable of maintaining separate books for qualifying activities, which may involve additional costs and administrative effort. * Risk of Disqualification: Even inadvertent lapses in compliance could result in loss of the tonnage tax benefit for an entire tax year, with potentially significant tax liabilities. * Audit Readiness: The requirement for an independent accountant's report compels companies to maintain high standards of record-keeping and internal controls. For Tax Authorities * Enhanced Oversight: The provision equips authorities with clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 11T of the Income-tax Rules, 1962 Maintenance of separate books Mandatory for qualifying shipping business Mandatory for qualifying shipping business Not addressed (procedural form only) Accountant's report Mandatory, in prescribed form, before specified date (section 63) Mandatory, in prescribed form, before specified date (section 44AB) Form No. 66 prescribed Specified date As per section 63 (likely aligned with return filing) As per section 44AB (audit report due date) Not addressed (relies on section) Definition of accountant Not specified in this clause (may be elsewhere in Bill) Explicit cross-reference to section 288(2) Explanation Not addressed Form and verification To be prescribed To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... references and potentially revised forms and timelines. * Prescriptive vs. Enabling Language: The new clause uses "in the prescribed form," enabling the Central Board of Direct Taxes (CBDT) to update forms and procedures without legislative amendment. Rule 11T : Procedural Implementation Rule 11T operationalizes the requirement for the accountant's report by prescribing Form No. 66. It is likely that the Bill's reference to "prescribed form" will be implemented through a similar rule, ensuring continuity in audit procedures. Ambiguities and Issues * Definition of "Accountant": Absence of an explicit definition in Clause 232(21) may create interpretative uncertainty unless the Bill or Rules clarify that only chartered ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ependent audit as conditions for tonnage tax eligibility. The Indian framework, as updated in the 2025 Bill, remains broadly aligned with these international best practices, thereby supporting the competitiveness of Indian shipping companies in the global market. Conclusion Clause 232(21) of the Income Tax Bill, 2025, represents a continuation and modernization of the core compliance requirements underpinning the tonnage tax regime. By mandating the maintenance of separate books and the furnishing of an accountant's report as conditions precedent, the provision seeks to ensure that the concessional tax benefit is available only to bona fide and compliant shipping companies. The clause is largely consistent with the earlier Section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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