Tonnage Taxation System

Learn about the tonnage taxation system, its meaning, eligibility criteria, and method of computation.
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4 min
05-November-2025

The shipping industry plays a vital role in India’s global trade, and the government has taken several measures to make it more competitive. One such initiative is the Tonnage Tax Scheme (TTS), introduced under the Finance Act, 2004.

Under this scheme, shipping companies are taxed based on the tonnage of their qualifying ships rather than their actual income. This not only simplifies compliance but also reduces the tax burden, allowing businesses to focus on growth and fleet expansion.

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Eligibility criteria for tonnage tax scheme

To qualify for the Tonnage Tax Scheme, certain criteria must be met by the shipping companies:

  1. Type of business: The company must be engaged in the business of owning or operating qualifying ships. It should be actively involved in the shipping industry.
  2. Registered office: The company must have its registered office in India or in a Special Economic Zone (SEZ). This ensures that the benefits of the scheme are provided to Indian-based entities.
  3. Opting for the scheme: The company must make an application to the Income Tax Department to opt for the Tonnage Tax Scheme. Once approved, the company will be governed by the provisions of this system for the subsequent years.

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What is a qualifying company?

A qualifying company, under the Tonnage Tax Scheme, is one that meets specific requirements:

  1. Ownership of ships: The company must own and operate ships that qualify under the Tonnage Tax Scheme. The vessels must be used for the purposes of international trade and transport.
  2. Incorporation and location: The company must be incorporated in India or a Special Economic Zone (SEZ), contributing to the country's maritime industry.
  3. Operating ships in international trade: To qualify for the benefits of tonnage tax, the ships owned or operated by the company must be primarily engaged in international trade, and not just domestic transportation.
  4. Exemption from tax on actual income: Qualifying companies under this scheme are exempt from taxes based on actual income and instead pay taxes based on their ship's tonnage.

What are qualifying ships?

A qualifying ship under this scheme must meet specific standards that determine eligibility for tax benefits:

  • Usage and purpose: The ship should be engaged in international trade or transportation of goods and passengers.
  • Ownership: The ship must be owned and operated by a company that has opted for the Tonnage Tax Scheme.
  • Tonnage consideration: The ship’s net tonnage forms the basis for computing the company’s tax liability.

This ensures that only genuine maritime operators contributing to global trade benefit from the scheme.

Much like the stability that comes with predictable taxation under the TTS, a Bajaj Finance Fixed Deposit ensures consistent and guaranteed returns — regardless of market fluctuations. Check rates.

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Tonnage tax: Manner of computation

The computation of tonnage tax is based on the net tonnage of the qualifying ships owned or operated by the company.

  1. Fixed tax rates: The tax is calculated using fixed rates based on the ship's net tonnage. These rates vary depending on the size of the vessel, with larger ships paying higher taxes.
  2. Annual tonnage tax: The tax liability is determined annually, based on the total net tonnage of the ships owned by the company. The rates are structured to encourage companies to expand their fleets.
  3. Simplified tax compliance: By using tonnage as the basis for tax calculation, the tonnage tax system simplifies the tax filing process, allowing shipping companies to focus on their business operations rather than complex tax assessments.

This simplified model promotes transparency, efficiency, and sustained investment in India’s maritime infrastructure.

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Conclusion

The Tonnage Tax Scheme has been instrumental in strengthening India’s maritime industry by simplifying taxation for shipping companies. By linking tax liability to ship capacity instead of income, it has encouraged more companies to register and operate under the Indian flag.

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Frequently asked questions

What is tonnage tax in India?
Tonnage tax in India is a tax scheme introduced to simplify taxation for shipping companies. Instead of taxing companies on actual income, the tax is based on the tonnage (size) of the ships they operate. This system aims to encourage the growth of the maritime industry by reducing tax complexities.

How to calculate tonnage income?
Tonnage income is calculated based on the net tonnage of qualifying ships owned or operated by a company. The tax rates depend on the tonnage, with larger ships paying higher taxes. The company calculates the total tonnage of its fleet and applies the relevant tax rates for each ship's tonnage, ensuring accurate liability.

What is the minimum amount required to start a Bajaj Finance FD?

You can start investing with as little as Rs. 15,000, making it convenient to plan both short-term and long-term goals. Book FD.

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