The government of India has introduced a Tonnage Tax Scheme (TTS) for Indian shipping companies, through the Financial Bill 2004, presented to the parliament on July 8.
Indian shipping companies now have the option to opt into the TTS and pay tonnage tax or pay the normal corporate tax.
On being approved for TTS by the joint commissioner:
- Tonnage tax will be 35% of the tonnage income, which will be calculated on the basis of the net tonnage capacity of the qualifying fleet as per a predetermined table.
- The actual shipping income (that is, the profits arising from its core activities or incidental activities that do not exceed one-quarter of the core activities) would not form a part of the total income for tax purposes.
- Losses of the previous years cannot be carried forward nor will companies be entitled to any deductions or set-offs while computing the tonnage income.
- A reserve equal to at least 20% of the shipping profits will have to be created, which will be used within eight years to acquire new ships and will, until used, be deployed for shipping business purposes only.
- Not more than 49% on the net tonnage can be chartered in.
Having opted for TTS, shipping companies will be bound by it for 10 years.
The concessional regime under section 33AC of the Income Tax Act, under which Indian shipping companies were entitled to deduct up to 100% of their shipping profits (subject to certain conditions, including crediting the amounts to a reserve account) has been withdrawn.
This scheme, though marginally demanding now, will help shipping companies predict their tax liabilities accurately.
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