Section 115VP of the Income-tax Act governs the tonnage tax scheme, allowing qualifying companies to compute income under Chapter XII-G. Currently, the Joint Commissioner must approve or reject an application within one month from the end of the month in which it was received. However, this timeframe has been found insufficient for thorough verification, including document review and ship inspections. To address this, the Finance Bill, 2025 proposes extending the deadline for applications received on or after April 1, 2025, to three months from the end of the quarter in which the application was submitted. This amendment ensures adequate time for assessment and will take effect from April 1, 2025.
Budget 2025: Increasing time limit available to pass order under section 115VP
Section 115VP of the Act pertains to method and time of opting for tonnage tax scheme, under which the tonnage income of an assessee shall be computed in accordance with the provisions of Chapter XII-G. Sub-section (1) of section 115VP of the Act provides that a qualifying company may opt for the tonnage tax scheme by making an application to the Joint Commissioner having jurisdiction over the company, as prescribed, for such scheme.
2. Sub-section (3) of the said section requires that the Joint Commissioner on receipt of such application may call for information or documents from the company as deemed fit and after satisfying themselves about the eligibility of such company to make an option for tonnage tax scheme, pass an order in writing, approving the option for tonnage tax scheme or if not so satisfied, refuse such approval, after providing reasonable opportunity of being heard. Sub-section (4) of the said section requires for order under sub-section (3) of section 115VP of the Act, whether approving or rejecting the application to exercise option of tonnage tax scheme, to be passed before the expiry of one month from the end of the month in which the application was received under sub-section (1) of said section.
3. It is seen that very less time is available under sub-section (4) of section 115VP of the Act with the Joint Commissioner of Income-tax for verification of information and documents, including physical inspection of the ships if necessary, providing an opportunity of being heard and then passing a reasoned order approving or rejecting the application.
4. Accordingly, to address this issue, it is proposed to amend sub-section (4) of section 115VP to provide that for application received under sub-section (1) on or after the 1st day of April, 2025, order under sub-section (3) shall be passed before the expiry of three months from the end of the quarter in which such application was received.
5. This amendment will take effect from the 1st day of April, 2025.
[Clause 32]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 32 of the Bill seeks to amend section 115VP of the Income-tax Act relating to method and time of opting for tonnage tax scheme.
Sub-section (1) of the said section provides that a qualifying company may opt for the tonnage tax scheme by making an application to the Joint Commissioner having jurisdiction over the company. Sub-section (3) of the said section requires that the Joint Commissioner may, on receipt of such application, call for information as deemed fit and pass an order in writing, approving the option for tonnage tax scheme or if not so satisfied, refusing such approval, after providing reasonable opportunity of being heard.
Sub-section (4) of the said section provides for an order under sub-section (3) to be passed before the expiry of one month from the end of the month in which the application was received under sub-section (1).
It is proposed to insert a new proviso in said sub-section so as to provide that for application received under sub-section (1) on or after 1st April, 2025, order under sub-section (3) shall be passed before the expiry of three months from the end of the quarter in which such application was received.
This amendment will take effect from 1st April, 2025.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
32. Amendment of section 115VP.
In section 115VP of the Income-tax Act, after subsection (4), the following proviso shall be inserted, namely:––
“Provided that for an application received under subsection (1) on or after the 1st April, 2025, order under subsection (3) shall be passed before the expiry of three months from the end of the quarter in which such application was received.”.
