The Finance Bill 2025 proposes extending the tonnage tax scheme to inland vessels, registered under the Inland Vessels Act, 2021, in an effort to boost India’s inland water transportation industry. The tonnage tax regime, which was initially introduced in 2004 to promote the shipping industry, offers qualifying shipping companies the option to choose between this regime or the normal corporate tax regime. The amendment aims to attract investment into the capital-intensive inland transportation sector, which currently faces a shortage of vessels. Under the proposed changes, inland vessels will be treated similarly to seagoing ships, with relevant sections of the Income-tax Act, including those related to operating ships and calculating tonnage income, amended to include inland vessels. These amendments will be effective from April 1, 2026, and will apply to the assessment year 2026-27 and subsequent years, thus providing a framework for the growth and investment in India’s inland waterway transportation.
Budget 2025: Extension of benefits of tonnage tax scheme to inland vessels
Tonnage tax scheme in Chapter XII-G of the Act was brought vide Finance Act, 2004 in order to promote Indian shipping industry wherein the qualifying shipping companies were given the choice to opt for the tonnage tax regime or continue to remain within the normal corporate tax regime.
2. Representations were received to extend tonnage tax scheme to inland vessels to promote inland water transportation industry. It is stated that at present, India is short of inland water transport vessels fleet and require higher investments in the sector which is capital intensive. Therefore, to provide a boost to inland water transportation, it was represented to include inland vessels under the ambit of tonnage tax scheme.
3. Therefore, to promote inland water transportation in the country and to attract investments in the sector, it is proposed to extend the benefits of tonnage tax scheme to Inland Vessels registered under Inland Vessels Act, 2021. Accordingly inland vessels have been included in the section 115VD for being eligible to be a qualified ship. Further, inland vessels have been defined in section 115V of the Act in the same manner as provided in the Inland Vessels Act, 2021. Other corresponding amendments have been made to extend the tonnage tax scheme to inland vessels.
4. These amendment will take effect from the 1st day of April, 2026 and shall, accordingly, apply in relation to the assessment year 2026-27 and subsequent assessment years.
[Clauses 26, 27, 28, 29, 30, 31, 33, 34, 35 & 36]
Extract of Relevant Clauses of Finance Bill, 2025
Clause 26 of the Bill seeks to amend section 115V of the Income-tax Act relating to definitions.
It is proposed to insert a definition of “inland vessel” in the said section to provide that “inland vessel” is a vessel having the meaning assigned to it in clause (q) of section 3 of the Inland Vessels Act, 2021.
It is further proposed to include reference to inland vessel in definition of “bareboat charter”, “bareboat charter-cum-demise”, “pleasure craft” and “qualifying ship”.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Clause 27 of the Bill seeks to amend section 115VB of the Income-tax Act relating to operating ships.
The said section provides that a company shall be regarded as operating a ship if it operates any ship whether owned or chartered by it and includes a case where even a part of the ship has been chartered in by it in an arrangement such as slot charter, space charter or joint charter.
It is proposed to amend said section to insert a reference to inland vessel and provide that operating ship includes inland vessel as well.
It is further proposed to amend the proviso to the said section to provide that a company shall not be regarded as the operator of a ship or inland vessel, as the case maybe, which has been chartered out by it on bareboat charter-cum-demise terms or on bareboat charter terms for a period exceeding three years.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Clause 28 of the Bill seeks to amend section 115VD of the Income-tax Act relating to qualifying ship.
The said section provides that a ship is a qualifying ship if it is a seagoing ship or vessel, of fifteen net tonnage or more; and it is a ship registered under the Merchant Shipping Act, 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 section 407 of the Merchant Shipping Act, 1958 and a valid certificate in respect of such ship indicating its net tonnage is in force.
It is proposed to include reference to inland vessel in the said section to provide that a qualifying ship would include inland vessel registered under the Inland Vessel Act, 2021 as well.
It is further proposed to amend the said section to provide that a qualifying ship would not include a seagoing ship or inland vessel, if the main purpose for which it is used is the provision of goods or services of a kind normally provided on land.
This amendment will take effect from the 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Clause 29 of the Bill seeks to amend section 115VG of the Income-tax Act relating to computing of tonnage income.
Sub-section (4) of the said section provides that for the purposes of Chapter XII-G, tonnage shall mean the tonnage of a ship indicated in the certificate referred to in section 115VX and includes the deemed tonnage computed in the prescribed manner.
It is proposed to amend sub-section (4) of the said section to include inland vessels under its purview.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Clause 30 of the Bill seeks to amend section 115V-I of the Income-tax Act relating to relevant shipping income.
Sub-section (2) of the said section provides for the core activities of a tonnage tax company.
Sub-section (6) of the said section provides that where a tonnage tax company operates any ship which is not a qualifying ship, the income attributable to operating such non-qualifying ship shall be computed in accordance with the other provisions of this Act.
It is proposed to amend sub-sections (2) and (6) of the said section to include inland vessels under its purview.
These amendments will take effect from the 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Clause 31 of the Bill seeks to amend section 115VK of the Income-tax Act relating to depreciation.
Sub-section (2) of the said section provides that the written down value of the block of assets, being ships as on the first day of the first previous year, shall be divided in the ratio of the book written down value of the qualifying ships and the book written down value of the non-qualifying ships.
It is proposed to amend the said sub-section to include inland vessels under its purview.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Clause 33 of the Bill seeks to amend section 115VT of the Income-tax Act relating to transfer of profits to tonnage tax reserve account.
It is proposed to amend sub-section (3), sub-section (4) and Explanation to the said section to include inland vessels under its purview.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Clause 34 of the Bill seeks to amend section 115VV of the Income-tax Act relating to limit for charter in of tonnage.
It is proposed to amend sub-section (4) and Explanation to the said section to include inland vessels under its purview.
These amendments will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Clause 35 of the Bill seeks to amend section 115VX of the Income-tax Act relating to determination of tonnage.
Clause (a) of sub-section (1) of the said section provides tonnage of a ship shall be determined in accordance with the valid certificate indicating of tonnage.
Clause (b) of sub-section (1) of the said section provides meaning of valid certificate in case of ships registered in India and in case of ships registered outside India.
It is proposed to amend clauses (a) and (b) of sub-section (1) to provide valid certificate would also cover in case of inland vessel registered in India, a certificate issued under the Inland Vessels Act, 2021.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Clause 36 of the Bill seeks to amend section 115VZA of the Income-tax Act relating to effect of temporarily ceasing to operate qualifying ships.
Sub-section (2) of the said section provides that where a qualifying company continues to operate a ship which temporarily ceases to be a qualifying ship, such ship shall not be considered as a qualifying ship for the purposes of this Chapter.
It is proposed to amend sub-section (2) of the said section to include inland vessels under its purview.
This amendment will take effect from 1st April, 2026 and will, accordingly, apply in relation to the assessment year 2026-2027 and subsequent assessment years.
Extract of Relevant Amendment Proposed by Finance Bill, 2025
26. Amendment of section 115V.
In section 115V of the Income-tax Act, with effect from the 1st April, 2026,––
(i) in clauses (a), (b), (f) and (h), for the word “ship”, the words “ship or inland vessel, as the case may be,” shall be substituted;
(ii) after clause (e), the following clause shall be inserted, namely:––
“(ea) “inland vessel” shall have the same meaning as assigned to it in clause (q) of section 3 of the Inland Vessels Act, 2021;”.
27. Amendment of section 115VB.
In section 115VB of the Income-tax Act, with effect from the 1st April, 2026,––
(a) after the words “any ship”, the words “or inland vessel, as the case may be,” shall be inserted;
(b) after the words “the ship”, the words “or inland vessel, as the case maybe,” shall be inserted;
(c) in the proviso, after the words “a ship”, the words “or inland vessel, as the case may be,” shall be inserted.
28. Amendment of section 115VD.
In section 115VD of the Income-tax Act, with effect from the 1st April, 2026,––
(i) after the words “Chapter, a ship”, the words “or inland vessel, as the case may be,” shall be inserted;
(ii) in clause (a), after the words “or vessel”, the words “, or inland vessel, as the case may be,” shall be inserted;
(iii) in clause (b), after the words and figures “section 407 of the Merchant Shipping Act, 1958”, the words and figures “or an inland vessel registered under the Inland Vessels Act, 2021, as the case may be,” shall be inserted;
(iv) in clause (c), after the words “such ship”, the words “or inland vessel, as the case may be,” shall be inserted;
(v) after the long line, in clause (i), after the words “or vessel”, the words “or inland vessel, as the case may be,” shall be inserted.
29. Amendment of section 115VG.
In section 115VG of the Income-tax Act, in sub-section (4), after the words “a ship”, the words “or inland vessel, as the case may be,” shall be inserted with effect from the 1st April, 2026.
30. Amendment of section 115V-I.
In section 115V-I of the Income-tax Act, with effect from the 1st April, 2026,––
(a) in sub-section (2), in clause (ii),––
(i) for the words “other ship-related activities”, the words “other ship-related or inland vessel related activities, as the case may be,” shall be substituted;
(ii) in sub-clause (A), in the Explanation, in clause (a), after the words “more ships”, the words “or inland vessels, as the case may be,” shall be inserted;
(b) in sub-section (6), after the words “any ship”, the words “or inland vessel, as the case may be,” shall be inserted.
31. Amendment of section 115VK.
In section 115VK of the Income-tax Act, in sub-section (2), after the words “being ships”, the words “or inland vessels, as the case may be” shall be inserted with effect from the 1st April, 2026.
33. Amendment of section 115VT.
In section 115VT of the Income-tax Act, with effect from the 1st April, 2026,––
(i) in sub-section (3), after the words “new ship” at both the places where they occur, the words “or new inland vessel, as the case may be” shall be inserted;
(ii) in sub-section (4), in clause (c), for the words, brackets, letter and figure “as specified in clause (a) of subsection (3), but such ship”, the words, brackets, letter and figure, “or new inland vessel, as the case may be, as specified in clause (a) of sub-section (3), but such ship or inland vessel, as the case may be,” shall be substituted;
(iii) in the Explanation, for the words ‘section, “new ship” includes’, the words ‘section, “new ship or new inland vessel”, as the case may be, includes’ shall be substituted.
34. Amendment of section 115VV.
In section 115VV of the Income-tax Act, with effect from the 1st April, 2026,––
(a) n in sub-section (4), for the words “chartered in”, the words “or inland vessels, as the case may be, chartered in” shall be substituted;
(b) in the Explanation, after the words “a ship”, the words “or inland vessel, as the case may be,” shall be inserted.
35. Amendment of section 115VX.
(i) in clause (a), after the words “a ship”, the words “or inland vessel, as the case may be,” shall be inserted;
(ii) in clause (b), after sub-clause (ii), the following sub-clause shall be inserted, namely:––
“(iii) in case of inland vessel registered in India, a certificate issued under the Inland Vessels Act, 2021.”.
36. Amendment of section 115VZA.
(a) after the words “a ship”, the words “or inland vessel, as the case may be,” shall be inserted;
(b) after the words “such ship”, the words “or inland vessel, as the case may be,” shall be inserted.
