Chapter XIII - Determination of Tax in Special Cases
Section 227
Section 227: computation of tonnage income
Section 227 lays down the mechanical formula for computing tonnage income - a notional measure of business income for a company that has opted into the tonnage tax scheme, based on each qualifying ship's net tonnage rather than its actual profit.
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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
(1) The tonnage income of a tonnage tax company for a tax year shall be the aggregate of the tonnage income of each qualifying ship computed as per sub-sections (2) and (3).
(2) For the purposes of sub-section (1), the tonnage income of each qualifying ship shall be computed as per the following formula:— TI = DTI × N where,— TI = the tonnage income of each qualifying ship; DTI = the daily tonnage income of each qualifying ship; N = the number of days in the tax year or in part of the tax year in case the ship is operated by the company as a qualifying ship for only part of the tax year.
(3) For the purposes of sub-section (2), the daily tonnage income of a qualifying ship having tonnage referred to in column B of the Table below shall be the amount specified in the corresponding entity in column C thereof:
| Sl. No. | Qualifying ship having net tonnage | Amount of daily tonnage income |
|---|---|---|
| 1 | Up to 1000. | ₹70 for each 100 tons. |
| 2 | Exceeding 1000 but not more than 10000. | ₹700 plus ₹53 for each 100 tons exceeding 1000 tons. |
| 3 | Exceeding 10000 but not more than 25000. | ₹5470 plus ₹42 for each 100 tons exceeding 10000 tons. |
| 4 | Exceeding 25000. | ₹11770 plus ₹29 for each 100 tons exceeding 25000 tons. |
(4) For the purposes of this Part of the Chapter, the tonnage shall— (a) mean the tonnage of a ship or inland vessel, as the case may be, indicated in the valid certificate referred to in sub-section (9); and (b) include the deemed tonnage, being the tonnage in respect of an arrangement of purchase of slots, slot charter and an arrangement of sharing of break-bulk vessel, computed in the manner, as may be prescribed.
(5) The tonnage shall be rounded off to the nearest multiple of hundred tons and for this purpose any tonnage consisting of kilograms shall be ignored and if the tonnage so rounded off is not a multiple of hundred, then, if the last figure in that amount is,— (a) fifty tons or more, the tonnage shall be increased to the next higher tonnage; (b) less than fifty tons, the tonnage shall be reduced to the next lower tonnage, which is a multiple of hundred and the tonnage so rounded off shall be the tonnage of the ship for the purposes of this section.
(6) No deduction or set off shall be allowed in computing the tonnage income under this Part of the Chapter, irrespective of anything contained in any other provision of this Act.
(7) Where a qualifying ship is operated by two or more companies by way of— (a) joint interest in the ship; or (b) an agreement for the use of the ship, and their respective shares are definite and ascertainable, the tonnage income of each such company shall be an amount equal to a share of income proportionate to its share of that interest.
(8) Subject to the provisions of sub-section (7), where two or more companies are operators of a qualifying ship, the tonnage income of each company shall be computed as if each had been the only operator.
(9) For the purposes of this Part,— (a) the tonnage of a ship or inland vessel, as the case may be, shall be determined as per the valid certificate indicating its tonnage; (b) “valid certificate” means,— (i) in case of ships registered in India,— (A) having a length of less than twenty-four metres, a certificate issued under the Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 made under the Merchant Shipping Act, 1958 (44 of 1958); (B) having a length of twenty-four metres or more, an international tonnage certificate issued under the provisions of the Convention on Tonnage Measurement of Ships, 1969, as specified in the Merchant Shipping (Tonnage Measurement of Ship) Rules, 1987 made under the said Act; (ii) in case of ships registered outside India, a licence issued by the Director-General of Shipping under section 406 or 407 of the Merchant Shipping Act, 1958 (44 of 1958) specifying the net tonnage on the basis of Tonnage Certificate issued by the Flag State Administration, where the ship is registered or any other evidence acceptable to the Director-General of Shipping produced by the ship owner while seeking permission for chartering in the ship; (iii) in case of inland vessel registered in India, a certificate of registration issued under the Inland Vessels Act, 2021 (24 of 2021).
Introduction
Section 227 computes tonnage income by applying statutory daily rates to the net tonnage of qualifying ships and relevant operating days.
Joint operation and certificate rules affect the calculation, so ship records and the current amended rate table matter.
Key takeaways
Ship-by-ship formula
A company’s tonnage income is the sum of qualifying ships’ income, each calculated as daily tonnage income multiplied by operating days.
Net tonnage sets daily amount
The applicable daily amount depends on net-tonnage bands and the certificate or deemed-tonnage rules.
Joint operations are apportioned
Where qualifying ships are operated jointly with definite shares, the section apportions the income accordingly.
The formula
A tonnage tax company's tonnage income for a tax year is the aggregate of the tonnage income of each qualifying ship, computed as TI = DTI x N, where TI is the tonnage income of the ship, DTI is its daily tonnage income, and N is the number of days in the tax year (or part of the year) that the ship was operated by the company as a qualifying ship.
Daily tonnage income slabs
The daily tonnage income (DTI) of a qualifying ship depends on its net tonnage, per the following table:
| Net tonnage of the qualifying ship | Daily tonnage income |
|---|---|
| Up to 1,000 | ₹70 for each 100 tons |
| Exceeding 1,000 but not more than 10,000 | ₹700 plus ₹53 for each 100 tons exceeding 1,000 tons |
| Exceeding 10,000 but not more than 25,000 | ₹5,470 plus ₹42 for each 100 tons exceeding 10,000 tons |
| Exceeding 25,000 | ₹11,770 plus ₹29 for each 100 tons exceeding 25,000 tons |
Tonnage and rounding rules
Tonnage means the tonnage of a ship or inland vessel indicated in its valid certificate, and includes "deemed tonnage" attributable to arrangements like slot purchase, slot charter and break-bulk vessel sharing, computed in the prescribed manner.
Tonnage is rounded to the nearest multiple of 100 tons - kilograms are ignored, and if the last figure is 50 tons or more it is rounded up, and if less than 50 tons it is rounded down.
No deduction or set-off is allowed while computing tonnage income under this Part, irrespective of any other provision of the Act.
Ships operated jointly by two or more companies
Where a qualifying ship is operated by two or more companies through joint interest in the ship or under a usage agreement, and their respective shares are definite and ascertainable, each company's tonnage income is its proportionate share. If shares are not so ascertainable, each company's tonnage income is computed as if it were the only operator.
What counts as a "valid certificate"
The tonnage figure is taken from a valid certificate: for ships registered in India, this is a Merchant Shipping (Tonnage Measurement of Ship) Rules certificate or, for vessels 24 metres or longer, an international tonnage certificate; for ships registered outside India, a licence issued by the Director-General of Shipping specifying net tonnage; and for inland vessels registered in India, a certificate of registration under the Inland Vessels Act, 2021.
Step-by-step flow for computing tonnage income under Section 227
- 1
Find each ship's tonnage from the valid certificate
Tonnage is as shown in the valid certificate in Section 227(9), and includes deemed tonnage for slot purchase, slot charter and break-bulk sharing, computed in the prescribed manner (Section 227(4)).
- 2
Round the tonnage to the nearest hundred tons
Ignore kilograms. If the last two figures are fifty tons or more, round up; if less than fifty, round down (Section 227(5)).
- 3
Find the daily tonnage income from the Table in Section 227(3)
Up to 1000 tons: ₹70 per 100 tons. Over 1000 up to 10000: ₹700 plus ₹53 per 100 tons above 1000. Over 10000 up to 25000: ₹5470 plus ₹42 per 100 tons above 10000. Over 25000: ₹11770 plus ₹29 per 100 tons above 25000.
- 4
Multiply by the number of days
TI = DTI × N, where N is the days in the tax year, or the days the ship was operated as a qualifying ship if only part of the year (Section 227(2)). No deduction or set off is allowed (Section 227(6)).
- 5
Is the ship operated by two or more companies?
- Yes, with definite and ascertainable shares: Each company takes its proportionate share (Section 227(7)).
- Yes, but shares are not definite: Each company computes as if it were the only operator (Section 227(8)). Then aggregate across its ships.
- No: Aggregate the tonnage income of all qualifying ships for the company (Section 227(1)).
Practical checklist
Do
- Retain valid tonnage certificates, operating-day records and joint-operation allocations.
- Apply the current amended rate table and rounding rules to each qualifying ship.
Avoid
- Use gross freight receipts as the tonnage-income base.
Illustrative example
Worked example: two ships, one for part of the year
Hypothetical facts (illustration only, not a real taxpayer): A tonnage tax company operates two qualifying ships in the tax year 1 April 2026 to 31 March 2027. Ship X has a certified net tonnage of 15,249 tons and some kilograms and is operated as a qualifying ship from 1 October 2026 to 31 March 2027. Ship Y has a net tonnage of 800 tons and is operated for the whole year. The tonnages and dates are assumed; the Table amounts are from Section 227(3).
Ship X - rounding
Ignore the kilograms. The last two figures (49) are less than fifty, so 15,249 tons rounds down to 15,200 tons.
Ship X - daily income
Slab 3: ₹5,470 + ₹42 × (15,200 − 10,000) / 100 = ₹5,470 + ₹42 × 52 = ₹5,470 + ₹2,184 = ₹7,654 a day.
Ship X - days
October 31 + November 30 + December 31 + January 31 + February 28 + March 31 = 182 days. TI = ₹7,654 × 182 = ₹13,93,028.
Ship Y
Slab 1: 800 / 100 × ₹70 = ₹560 a day. The year has 365 days, so TI = ₹560 × 365 = ₹2,04,400.
Aggregate
Tonnage income = ₹13,93,028 + ₹2,04,400 = ₹15,97,428. No deduction or set off is allowed against it.
Outcome
- The company's tonnage income for the tax year is ₹15,97,428.
- The figure does not depend on actual freight earned or costs incurred.
Frequently asked questions
Can a tonnage tax company claim normal business deductions against tonnage income?
No - Section 227(6) expressly bars any deduction or set-off in computing tonnage income under this Part, irrespective of any other provision of the Act.
Is tonnage income based on actual freight earnings?
No. It is a notional figure computed purely from each qualifying ship's net tonnage and the number of days it was operated, using the slab rates in Section 227(3) - it does not depend on the ship's actual revenue or profit.
How is a tonnage like 15,250 tons rounded under Section 227(5)?
Kilograms are ignored. If the last two figures are fifty tons or more, the tonnage goes up to the next hundred, so 15,250 tons becomes 15,300 tons. If they are less than fifty, it goes down, so 15,249 tons becomes 15,200 tons.
Need help applying this provision to your situation?
Talk to our tax team about tonnage income computationLast updated 10 October 2026