Chapter XIII - Determination of Tax in Special Cases
Section 235
Section 235: interpretation (definitions for the tonnage tax scheme)
Section 235 closes out the tonnage tax Part of the Act by defining the key terms used throughout Sections 225 to 234 - most importantly, what counts as a "qualifying company" and a "qualifying ship".
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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
For the purposes of this Part,—
(a) “bareboat charter” means hiring of a ship or inland vessel, as the case may be, for a stipulated period on terms which give the charterer possession and control of the ship or inland vessel, as the case may be, including the right to appoint the master and crew;
(b) “bareboat charter-cum-demise” means a bareboat charter where the ownership of the ship or inland vessel, as the case may be, is intended to be transferred after a specified period to the company to whom it has been chartered;
(c) “Director-General of Shipping” means the Director-General of Shipping appointed by the Central Government under section 7(1) of the Merchant Shipping Act, 1958 (44 of 1958);
(d) “factory ship” includes a vessel providing processing services in respect of processing of the fishing produce;
(e) “fishing vessel” shall have the meaning assigned to it in section 3(12) of the Merchant Shipping Act, 1958 (44 of 1958);
(f) “inland vessel” shall have the meaning assigned to it in section 3(q) of the Inland Vessels Act, 2021 (24 of 2021);
(fa) “Inland Waterways Authority of India” shall have the same meaning as assigned to it in section 3 of the Inland Waterways Authority of India Act, 1985 (82 of 1985);
(g) “pleasure craft” means a ship or inland vessel, as the case may be, of a kind whose primary use is for the purposes of sport or recreation;
(h) “qualifying company” means a company, if— (i) it is an Indian company; (ii) the place of effective management of the company is in India; (iii) it owns at least one qualifying ship; and (iv) the main object of the company is to carry on the business of operating ships, and for the purposes of sub-clause (ii), “place of effective management of the company” means— (A) the place where the board of directors of the company or its executive directors, make their decisions; or (B) in a case where the board of directors routinely approve the commercial and strategic decisions made by the executive directors or officers of the company, the place where such executive directors or officers of the company perform their functions;
(i) “qualifying ship” means a ship or inland vessel, as the case may be, if— (i) it is a seagoing ship or vessel or inland vessel, as the case may be, of fifteen net tonnage or more; (ii) it is a ship registered under the Merchant Shipping Act, 1958 (44 of 1958), or a ship registered outside India in respect of which a licence has been issued by the Director-General of Shipping under section 406 or 407 of said Act or an inland vessel registered under the Inland Vessels Act, 2021 (24 of 2021), as the case may be; and (iii) a valid certificate in respect of such ship or inland vessel, as the case may be, indicating its net tonnage is in force, but does not include— (A) a seagoing ship or vessel or inland vessel, as the case may be, if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land; (B) fishing vessels; (C) factory ships; (D) pleasure crafts; (E) harbour and river ferries; (F) offshore installations; and (G) a qualifying ship which is used as a fishing vessel for more than thirty days during a tax year;
(j) “seagoing ship” means a ship, if it is certified as such by the competent authority of any country;
(k) “tonnage income” means the income of a tonnage tax company computed as per the provisions of this Part of the Chapter;
(l) “tonnage tax activities” means the activities referred to in section 228(3) and (7);
(m) “tonnage tax business” means the business of operating qualifying ships giving rise to relevant shipping income as referred to in section 228(1);
(n) “tonnage tax company” means a qualifying company in relation to which tonnage tax option is in force;
(o) “tonnage tax scheme” means a scheme for computation of profits and gains of business of operating qualifying ships under the provisions of this Part.
Introduction
Section 235 supplies definitions for the tonnage-tax Part, including qualifying company and qualifying ship. Those definitions determine whether the computation and option rules apply.
Key takeaways
Tonnage-tax definitions
This section defines qualifying company, qualifying ship, charter and related terms that control entry into the shipping scheme.
Company and vessel must qualify
A company’s Indian status, management and shipping business, and a vessel’s tonnage, registration and use must be checked against these definitions.
Inland-waterways authority added
Finance Act 2026 added a definition of the Inland Waterways Authority of India for these tonnage-tax provisions.
Charter-related definitions
"Bareboat charter" means hiring a ship or inland vessel for a stipulated period on terms that give the charterer possession and control, including the right to appoint the master and crew.
"Bareboat charter-cum-demise" is a bareboat charter where ownership of the ship or inland vessel is intended to transfer to the charterer company after a specified period.
"Qualifying company"
A company is a qualifying company if: it is an Indian company; its place of effective management is in India; it owns at least one qualifying ship; and its main object is to carry on the business of operating ships.
"Place of effective management" for this purpose means where the board of directors (or executive directors) make their decisions, or, where the board routinely approves decisions made by executive officers, where those officers perform their functions.
"Qualifying ship"
A ship or inland vessel is a qualifying ship if it is a seagoing ship/vessel or inland vessel of 15 net tonnage or more, is registered under the Merchant Shipping Act, 1958 (or licensed by the Director-General of Shipping if registered outside India, or registered under the Inland Vessels Act, 2021), and has a valid certificate indicating its net tonnage in force.
It does NOT include: a seagoing ship/vessel or inland vessel mainly used to provide goods or services normally provided on land; fishing vessels; factory ships; pleasure crafts; harbour and river ferries; offshore installations; or a qualifying ship used as a fishing vessel for more than thirty days in a tax year.
Other defined terms
"Factory ship" includes a vessel processing fishing produce. "Fishing vessel" and "inland vessel" take the meanings given in the Merchant Shipping Act, 1958 and the Inland Vessels Act, 2021 respectively. "Pleasure craft" means a ship or inland vessel primarily used for sport or recreation. "Seagoing ship" means a ship certified as such by the competent authority of any country.
"Tonnage income" means income of a tonnage tax company computed under this Part. "Tonnage tax activities" means the activities referred to in Section 228(3) and (7). "Tonnage tax business" means the business of operating qualifying ships giving rise to relevant shipping income under Section 228(1). "Tonnage tax company" means a qualifying company for which a tonnage tax option is in force. "Tonnage tax scheme" means the scheme for computing profits of the business of operating qualifying ships under this Part.
Inland Waterways Authority of India
Clause (fa), inserted by Finance Act 2026, adopts the meaning assigned by section 3 of the Inland Waterways Authority of India Act, 1985. Read this statutory definition with the particular tonnage-tax provision that uses the term; it does not waive vessel or company eligibility conditions.
Step-by-step flow for using the Section 235 definitions
- 1
Is the company a qualifying company under Section 235(h)?
All four conditions must be met: it is an Indian company; its place of effective management is in India; it owns at least one qualifying ship; and its main object is to carry on the business of operating ships.
- No: The company cannot be a tonnage tax company.
- Yes, subject to owning a qualifying ship: Go to the next step.
- 2
Is each ship or inland vessel a qualifying ship under Section 235(i)?
It must be a seagoing ship or vessel or an inland vessel of fifteen net tonnage or more; registered under the Merchant Shipping Act, 1958 (or a foreign-registered ship licensed under section 406 or 407 of that Act), or an inland vessel registered under the Inland Vessels Act, 2021; and hold a valid certificate showing its net tonnage.
- 3
Does any exclusion in Section 235(i)(A) to (G) apply?
Excluded: vessels mainly used to provide goods or services normally provided on land, fishing vessels, factory ships, pleasure craft, harbour and river ferries, offshore installations, and a qualifying ship used as a fishing vessel for more than thirty days during a tax year.
- Yes: That vessel is not a qualifying ship.
- No: The vessel is a qualifying ship.
- 4
Is a tonnage tax option in force for the qualifying company?
- No: It is a qualifying company but not a tonnage tax company (Section 235(n)).
- Yes: It is a tonnage tax company; go to the next step.
- 5
Classify the activities and income
Tonnage tax activities are those in Section 228(3) and (7); tonnage tax business is operating qualifying ships giving relevant shipping income under Section 228(1); tonnage income is computed under this Part (Section 235(k), (l), (m)).
Practical checklist
Do
- Confirm the company’s qualifying status and each vessel’s statutory eligibility.
- Retain flag, registration, charter and tonnage documents.
Avoid
- Assume every vessel operated by a shipping company is a qualifying ship.
Illustrative example
Worked example: testing a company's fleet
Hypothetical facts (illustration only, not a real taxpayer): Coastline Ltd is an Indian company whose board of directors takes its decisions in India. Its main object is operating ships. It owns: (1) a seagoing cargo ship of an assumed 5,000 net tonnage, registered under the Merchant Shipping Act, 1958, with a valid tonnage certificate; (2) a harbour ferry; (3) a seagoing vessel of an assumed 12 net tonnage; and (4) a registered seagoing ship of an assumed 900 net tonnage that was used as a fishing vessel for 35 days in the tax year.
Cargo ship
5,000 net tonnage is at least fifteen, it is registered and certified, and no exclusion applies. It is a qualifying ship.
Harbour ferry
Harbour and river ferries are excluded by Section 235(i)(E).
Small vessel
12 net tonnage is below fifteen, so the vessel fails Section 235(i)(i).
Vessel used for fishing
35 days is more than thirty days in the tax year, so Section 235(i)(G) excludes it for that year.
Company status
Coastline is an Indian company, its place of effective management is in India under Section 235(h), its main object is operating ships, and it owns one qualifying ship. It is a qualifying company. It becomes a tonnage tax company only if a tonnage tax option is in force.
Outcome
- Only the cargo ship is a qualifying ship; Coastline is a qualifying company.
- Tonnage figures and the 35 days are assumed; the fifteen net tonnage and thirty-day limits are from Section 235(i).
Frequently asked questions
Does a fishing vessel qualify for the tonnage tax scheme?
No - Section 235(i) expressly excludes fishing vessels, factory ships, pleasure crafts, harbour/river ferries and offshore installations from the definition of "qualifying ship".
What is the minimum tonnage for a ship to be a "qualifying ship"?
A seagoing ship, vessel or inland vessel must be of 15 net tonnage or more to qualify.
Can a foreign company use the tonnage tax scheme?
No - a "qualifying company" must be an Indian company with its place of effective management in India, owning at least one qualifying ship, with the main object of operating ships.
Need help applying this provision to your situation?
Talk to our tax team about tonnage tax scheme eligibilityLast updated 10 October 2026