Section 230: exclusion of deduction, loss, set off, etc

Introduction

Tonnage income is a deemed business-income amount. This section prevents ordinary deductions, set-offs and losses from being used to reduce that amount, and gives pre-option losses separate treatment.

Key takeaways

What is excluded while the tonnage tax scheme applies

In computing tonnage income for any tax year in which the tonnage tax scheme applies, irrespective of any other Act provision:

• Sections 28 to 52 apply as if every loss, allowance or deduction relating to, or allowable for, any relevant tax year had already been given full effect for that year itself
• No loss referred to in Section 108(1)/(2)(b), 109(1), 112(1) or 116(1), to the extent it relates to the business of operating qualifying ships, can be carried forward or set off for tax years when the company is under the scheme
• No deduction is allowed under Chapter VIII in relation to profits and gains from operating qualifying ships
• In computing depreciation allowance under Section 33, the written down value of an asset used for the tonnage tax business is computed as if the company had actually claimed and been allowed depreciation for the relevant tax years

Losses that existed before opting in

Section 112 applies to losses that accrued to the company before it opted for the tonnage tax scheme and that relate to its tonnage tax business, as if those losses had been set off against relevant shipping income in the tax years the company is under the scheme.

Such pre-option losses cannot be set off against any income other than relevant shipping income, for tax years beginning on or after the company exercises its option under Section 231.

Any apportionment needed to determine these losses must be made on a reasonable basis.

When this provision applies

Maintain separate records for losses arising before entry and those arising while the company is under the tonnage tax scheme. The section assigns different rules to these periods.

The specified in-scheme loss restriction applies to the extent the loss relates to operating qualifying ships. Identify that connection instead of treating every loss anywhere in the company as covered.

Limits and procedural safeguards

A deduction treated as given full effect under subsection (1) cannot be saved for a later ordinary-tax year merely because the tonnage computation did not deduct it separately.

For assets used in the tonnage tax business, tax written down value must reflect the deemed depreciation treatment. An unchanged accounting book value does not establish the correct tax written down value.

Pre-option losses attributable to the tonnage business cannot be redirected to other income after exercise of the option. Any necessary allocation of those losses must have a reasonable basis.

Step-by-step review

1. List loss and allowance balances by year, provision and business activity.

2. Apply the in-scheme rules in subsection (1) and separately identify pre-option losses under subsection (2).

3. Prepare the tax written-down-value schedule, applying Section 229 where relevant and the deemed depreciation rule.

4. Document the reasonable allocation of pre-option losses and prevent their use against other income under subsection (3).

Hypothetical example

Hypothetical: a company enters the scheme with a pre-option shipping-business loss and separate non-shipping income. It cannot simply use that shipping loss against the non-shipping income after opting in. First determine the loss attributable to the tonnage business on a reasonable basis and apply subsections (2) and (3).

Records to prepare

Keep loss schedules showing origin year, statutory provision and attribution to qualifying shipping activity.

Reconcile tax asset values and deemed depreciation separately from book values; retain the basis for any allocation.

Official amended Act source

• Income-tax Act, 2025 as amended by Finance Act, 2026: Section 230 and related provisions

Step-by-step flow for applying Section 230

1. 1

   Is the company chargeable to tax under this Part for the tax year?

   • No: Section 230 does not apply to that tax year.
   • Yes: Go to the next step.
2. 2

   Treat all allowances under Sections 28 to 52 as fully used

   Every loss, allowance or deduction under Sections 28 to 52 for the relevant tax years is treated as given full effect in that year itself (Section 230(1)(a)).

3. 3

   Block loss carry forward and Chapter VIII deductions

   Losses under the listed provisions that relate to the qualifying ship business for tonnage tax years are not carried forward or set off (Section 230(1)(b)). No Chapter VIII deduction is allowed on profits from operating qualifying ships (Section 230(1)(c)).

4. 4

   Reduce the WDV as if depreciation had been allowed

   For assets used in the tonnage tax business, compute the WDV under Section 33 as if depreciation had been claimed and allowed for the relevant tax years (Section 230(1)(d)).

5. 5

   Does the company have losses from before the option that relate to the tonnage tax business?

   • Yes: Under Section 230(2) and (3), they are treated as set off against relevant shipping income and cannot be set off against other income. Apportion a mixed loss on a reasonable basis (Section 230(4)).
   • No: No further adjustment is needed.

Practical checklist

Glossary

Pre-option loss

A loss accruing before the tonnage option, whose attribution to the tonnage business determines the specific subsection (2) treatment.

Tax written down value

The statutory asset or block value used for depreciation, adjusted as the Act requires.

Frequently asked questions