Section 115VV of Income Tax Act: Limit for charter in of tonnage Income Tax

Amended and updated notes on section 115VV of Income Tax Act 1961 as amended by the Finance Act 2020 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to limit for charter in of tonnage.

Chapter XIIG (Sections 115V to 115VZC) of the Income Tax Act 1961 deals with the provisions related to special provisions relating to income of shipping companies. Section 115VV of IT Act 1961-2020 provides for limit for charter in of tonnage.

Recently, we have discussed in detail section 115VU (minimum training requirement for tonnage tax company) of IT Act 1961. Today, we learn the provisions of section 115VV of Income-tax Act 1961. The amended provision of section 115VV is effective for financial year 2020-21 relevant to the assessment year 2021-22.

In this article, you will learn detail of the provisions of section 115VV of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.

Section-115VV: Limit for charter in of tonnage

Section 115VV(1) of Income Tax Act

In the case of every company which has opted for tonnage tax scheme, not more than forty-nine per cent of the net tonnage of the qualifying ships operated by it during any previous year shall be chartered in.

Section 115VV(2) of Income Tax Act

The proportion of net tonnage referred to in sub-section (1) in respect of a previous year shall be calculated based on the average of net tonnage during that previous year.

Section 115VV(3) of Income Tax Act

For the purposes of sub-section (2), the average of net tonnage shall be computed in such manner as may be prescribed in consultation with the Director-General of Shipping.

Section 115VV(4) of Income Tax Act

Where the net tonnage of ships chartered in exceeds the limit under sub-section (1) during any previous year, the total income of such company in relation to that previous year shall be computed as if the option for tonnage tax scheme does not have effect for that previous year.

Section 115VV(5) of Income Tax Act

Where the limit under sub-section (1) had exceeded in any two consecutive previous years, the option for tonnage tax scheme shall cease to have effect from the beginning of the previous year following the second consecutive previous year in which the limit had exceeded.

Explanation: For the purposes of this section, the term “chartered in” shall exclude a ship chartered in by the company on bareboat charter-cum-demise terms.

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