Chapter XIII - Determination of Tax in Special Cases
Section 225
Section 225: income from the business of operating qualifying ships
Section 225 is the opening provision of the Act's tonnage tax scheme for shipping companies. It lets a company that operates "qualifying ships" choose to compute the income from that business under the special tonnage tax rules in this Part of the Act, instead of the Act's general business-income provisions.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
Irrespective of anything contained in sections 26 to 54 (except 50 and 53), in the case of a company, the income from the business of operating qualifying ships––
(a) may, at its option, be computed as per provisions of this Part; and
(b) such income shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of business or profession”.
Introduction
Section 225 opens the optional tonnage-tax regime. It covers income from the business of operating qualifying ships, with the detailed computation and entry rules in the following provisions.
Key takeaways
Optional shipping method
A qualifying company may opt to compute income from operating qualifying ships under the tonnage-tax provisions.
Scope of this Part
Other provisions in this Part explain the option, tonnage-income calculation, qualifying income and compliance conditions.
What the section provides
Irrespective of Sections 26 to 54 (except Sections 50 and 53), a company's income from the business of operating qualifying ships may, at its option, be computed under the provisions of this Part of the Act (the tonnage tax scheme).
Income so computed is deemed to be profits and gains of that business, chargeable to tax under the head "Profits and gains of business or profession".
What comes next in this Part
The following sections in this Part set out how the tonnage tax scheme actually works: how a company opts in (Section 231), how tonnage income is computed (Section 227), what counts as relevant shipping income (Section 228), depreciation treatment (Section 229), exclusions of ordinary deductions and losses (Section 230), the conditions a company must maintain to stay eligible (Section 232), and the rules for amalgamation, demerger and anti-avoidance (Sections 233-234).
When this provision applies
Treat Section 225 as the entry point to the shipping computation framework. Eligibility, the meaning of operating a vessel and a valid option must be read with Sections 226, 231 and 235.
Section 226 treats the tonnage tax business as separate from other activities. A company with shipping and other operations must keep their computation distinct rather than placing its entire income under this method.
Limits and procedural safeguards
The override expressly preserves Sections 50 and 53. It is not an unrestricted displacement of every normal business-income provision.
An eligible company that has not made the required option remains subject to the other computation provisions under Section 226(6). Ownership or chartering arrangements must also satisfy the detailed operating and qualifying tests.
Step-by-step review
1. Establish the company’s qualifying status and identify its qualifying ships or vessels under the definitions.
2. Check the operating arrangements under Section 226, including any charter-out exclusion.
3. Prepare the Section 231 application and retain the approval and operative-period records.
4. Compute tonnage income under Section 227 while separately classifying relevant shipping income under Section 228 and other business income.
Hypothetical example
Hypothetical: a company operates a qualifying ship and also runs a separate logistics business. A valid tonnage option does not place the logistics profit into the ship’s tonnage computation. The qualifying shipping business and other operations require separate treatment under Section 226.
Records to prepare
Retain qualifying-company evidence, ship or vessel certificates and ownership or charter agreements.
Keep the option application, approval and computation records separating tonnage and other businesses.
Official amended Act source
Step-by-step flow for applying Section 225
- 1
Is the taxpayer a company?
- No: Section 225 does not apply.
- Yes: Go to the next step.
- 2
Does the company have income from the business of operating qualifying ships?
Other businesses of the company stay under the normal provisions.
- No: Section 225 does not apply.
- Yes: Go to the next step.
- 3
Has the company opted to compute that income under this Part?
The option is made under the method in Section 231.
- No: The income is computed under the normal provisions of the Act.
- Yes: Go to the next step.
- 4
Compute the income under this Part
The tonnage tax rules apply irrespective of Sections 26 to 54, except Sections 50 and 53, which are left out of that override.
- 5
Place the income under the correct head
The income so computed is deemed to be profits and gains of the business, chargeable under the head "Profits and gains of business or profession" (Section 225(b)).
Practical checklist
Do
- Verify the shipping company qualifies before making a tonnage-tax election under the later provisions.
- Separate qualifying ship operations from other business activities.
- Retain qualifying-company evidence, ship or vessel certificates and ownership or charter agreements.
- Keep the option application, approval and computation records separating tonnage and other businesses.
Avoid
- Assume ownership of a ship alone automatically places income in the tonnage scheme.
Illustrative example
Worked example: a shipping company with two businesses
Hypothetical facts (illustration only, not a real taxpayer): Sagar Lines Ltd. operates qualifying ships and also runs a ship-repair workshop. It has a valid option under Section 231 for the tonnage tax scheme. All facts are assumed.
Company test
Sagar Lines Ltd. is a company, so Section 225 can apply.
Which income
Only the income from operating qualifying ships is covered. The workshop income is outside the scheme.
Computation
The shipping income is computed under this Part (tonnage income under Section 227) instead of under Sections 26 to 54, except Sections 50 and 53.
Head of income
The computed shipping income is deemed profits and gains of business under the head "Profits and gains of business or profession".
Outcome
- The shipping business is computed under the tonnage tax rules; the workshop is computed under the normal provisions.
- Section 225 gives the option; the computation details are in the later sections of this Part.
Glossary
- Tonnage income
- The statutory deemed business-income amount calculated under Section 227.
- Relevant shipping income
- The shipping-income category identified in Section 228, distinct from the tonnage-income calculation.
Frequently asked questions
Is the tonnage tax scheme mandatory for shipping companies?
No. Section 225 makes it optional - a company operating qualifying ships "may, at its option" compute that business's income under the tonnage tax scheme instead of the Act's normal rules.
What head of income does tonnage tax income fall under?
It is deemed to be profits and gains of business chargeable under the head "Profits and gains of business or profession".
Does the scheme cover every business of the shipping company?
No. Section 226 requires the tonnage tax business and other activities to be treated separately; qualifying shipping operations do not automatically absorb other business profits.
Does Section 225 itself specify the daily tonnage amount?
No. The computation formula and daily tonnage table are in Section 227; Section 225 authorises the optional method and identifies the head of income.
Need help applying this provision to your situation?
Talk to our tax team about the tonnage tax schemeLast updated 10 October 2026