Draft Income Tax Rule 146: Rules related to application for exercising option for tonnage tax scheme and other matters related to it

Draft Rule 146 of the Income-tax Rules, 2026 sets out detailed rules for exercising and continuing under the Tonnage Tax Scheme under Chapter XIII-G. Applications to opt for or renew the scheme must be filed in Form No. 80. The rule standardizes computation of deemed tonnage under section 227(4)(b) for slot charter and break-bulk arrangements. For slot purchase and slot charter, 2.5 TEUs (Twenty-foot Equivalent Units) are treated as equivalent to 1 Net Tonnage (NT), based on an illustrative formula derived from operational parameters of a typical container vessel. For break-bulk vessel sharing (space charter), conversion is based on load restrictions: where cargo is volume-restricted, 19 cubic meters equals 1 NT; where weight-restricted, 14 metric tons equals 1 NT. The rule also specifies incidental shipping activities qualifying under section 228(7), including maritime consultancy charges, loading/unloading income, ship management fees, and maritime education or recruitment fees. Further, the charter-in limit under section 232(15) to (20) is calculated by dividing total chartered-in ton-days by total ton-days operated in the tax year. An illustrative example shows that if chartered-in tonnage exceeds 49% (e.g., 56.65%), the option for the tonnage tax scheme ceases to have effect. The audit report required under section 232(21)(b) must be furnished in Form No. 81. Overall, the rule introduces standardized tonnage conversion mechanisms and strict charter-in thresholds to regulate eligibility under the tonnage tax regime.

Extract of Rule No. 146 of Draft Income-tax Rules, 2026

Rule 146

Rules related to application for exercising the option for tonnage tax scheme and other matters related to it

(1) For the purposes of Tonnage Tax Scheme under Chapter XIII-G of the Act:––

(a) an application under section 231(1) of the Act to opt for the tonnage tax scheme or under section 231(10) of the Act for renewing the option for the tonnage tax scheme, as the case may be, shall be made in Form No. 80 and shall be verified as specified therein;

(b) deemed tonnage under section 227(4)(b) of the Act in respect of an arrangement mentioned in Column B of the table below shall be computed on the basis as mentioned in Column C thereof:

TABLE

(c) the incidental activities referred to in section 228 (7) of the Act shall be the following, namely: —

(i) maritime consultancy charges;

(ii) income from loading or unloading of cargo;

(iii) ship management fees or remuneration received for managed vessels; and

(iv) maritime education or recruitment fees;

(d) the limit for charter-in of tonnage of the qualifying ships referred to in section 232(15) to (20) of the Act during any tax year shall be computed by dividing the total number of chartered-in ton days by the total number of ton days operated by the company;

(e) The audit report of a qualified company, required to be furnished under section 232(21)(b) of the Act shall be in Form No. 81.

(2) For the purposes of sub-rule (1)(b), the formula for conversion of TEUs into NT (Slot Charter) is as provided hereunder,—

(a) In addition to loading containers on their own container vessels, shipping companies also hire slots on container ships (not owned by them) plying on various routes. These slots could be hired for a sector voyage or on long term basis, all round the year, in various vessels and in varying numbers and thus cannot be converted to net tonnage identifying the particular vessel on which the slot is hired. Thus, a formula has been worked out to convert the slots hired into net tonnage. (See the worksheet appearing after this sub-rule).

(b) In the illustration, the parameters of a typical container vessel of Shipping Corporation of India (SCI) ‘R. Gandhi’ has been considered. This vessel operates on either of the three sectors operated by SCI, viz., Indfex Service (Far East to India), ISE Service (UK Continent to India) and Indamex Service (USA to India).

(c) One voyage covers loading at India, discharge at various ports en route and at the final destination, as well as loading at these ports for discharge at India. This complete cycle is called one voyage and the vessel can load 1534 containers or TEUs (twenty foot equivalent unit) on outward leg, i.e., from India to final destination and 1534 containers on the inward leg, i.e., from final destination outside India to India. Thus a vessel can carry 1534 X 2, i.e., 3068 TEUs in one voyage. Therefore, the vessel can carry 3068 TEUs X No. of voyage she can perform in a year and this has been converted into NT for the formula.

(d) The slots can also be used on a multi-utilisation basis. Thus, a typical vessel of 1534 TEU capacity can actually carry more than its declared capacity in TEUs. Similarly, a vessel may not load to its full capacity in any single voyage and may carry empty containers which do not earn any revenue. Hence for simplification, we can assume that the vessel loads to its declared capacity only in each sector voyage.

SUMMARY

1 NT : 19 cbm when loadable capacity is taken on volume basis.
1 NT : 14 t when loadable capacity is taken on weight basis.
1 NT : 2.5 TEUs when loadable capacity is taken on TEU basis.

Deemed tonnage would thus be calculated as under :

19 cbm is equivalent to 1 NT
14 metric tonnes is equivalent to 1 NT
2.5 TEUs is equivalent to 1 NT

Worksheet for TEU : NT formula

Average of INT in TEUs = A+B+C/3 = 1.23574/3 = 0.41192
0.41 NT = 1 slot
1.025 NT 2.5 slot
Therefore, 1 NT = 2.5 TEU

Illustrative Formula for conversion of Cargo carried (by volume and weight) into NT (Space Charter) is as follows:

(a) The quantum of cargo that can be carried by a break-bulk vessel is restricted by two factors – (i) volume of the cargo or (ii) weight of the cargo.

(b) Since the entire vessel is not chartered and only a small space is booked in the vessel, conversion of chartered space into net tonnage (NT) is not available. Hence, a conversion formula of cargo carried on a ship to its net tonnage has been worked out.

(c) The formula has been worked out based on a break-bulk vessel, ‘MV State of Nagaland’ owned by the Shipping Corporation of India Limited. Physical parameters of the vessel are :

(i) NT of the vessel : 8294

(ii) GT of the vessel : 14166

(iii) Cubic Capacity : 26186 Bale

(iv) Dead wt. : 20574 M/T

(v) Bunkers + water : 900 M/T

(vi) Ballast + constant : 1000 M/T

(vii) Loadable Dead wt.

(iv)- (v) – (vi) : 18675 M/T

(d) A vessel can either load on—

– Maximum bale capacity (i.e., maximum capacity restricted by volume of cargo); or

– Maximum dead weight capacity (i.e., maximum capacity restricted by weight of cargo).

(e) The vessel ‘State of Nagaland’ is a typical breakbulk vessel which operates in the India – UK Continent sector and can complete 3 voyages in a year. The complete circuit of India – UK Continent – India is considered as one voyage (i.e., cargo would be carried from India and discharged in UK Continent and on the return leg, cargo would be loaded at UK-Continent and discharged at India).

(f) The vessel can thus carry one way cargo of maximum bale capacity of 26186 cubic metres (cbm), i.e., maximum volume permissible or cargo of maximum 18675 metric tons, i.e., maximum weight permissible. Thus conversion of cargo carried to net tons (NT) can be worked out depending on whether the carrying capacity is limited by volume or weight. The workings have been done on the basis of what a normal breakbulk vessel can carry during a period of one year.

A. Cargo restricted by volume – In each leg i.e., from India – UK Continent and from UK-Continent to India, the vessel can carry maximum bale capacity of 26186 cbm. Thus in one voyage, the vessel can carry 2X26186 cbm. Therefore, in 3 voyages, the vessel would carry 2 X 26186 X 3 cbm bale capacity.

(i) Loadable bale capacity 26186 X 2 per voyage : 52372 cbm

(ii) Net tonnage of ship (NT) : 8294

(iii) Max No. of voyages/year : 3

(iv) Loadable capacity 26186 cbm X 2 X 3 : 157116 cbm

NT : cbm based on volume of cargo (iv)/(ii) = (157116cbm/8294 NT)

1 NT = 18.94 cbm say 19 cbm

B. Cargo restricted by weight – In each leg i.e., from India – UK Continent and from UK-Continent to India, the vessel can carry maximum cargo weight of 18675 metric tons. Thus in one voyage, the vessel can carry 2 X 18675 metric tons. Therefore, in 3 voyages, the vessel would carry 2 X 18675 X 3 metric tons (mt).

(i) Loadable weight 18675 mt. X 2 per voyage : 37350 mt.

(ii) Net tonnage of ship (NT) : 8294

(iii) Max No. of voyages/year : 3

(iv) Loadable capacity 18675 mt. X 2 X 3 : 112050 mt.

NT : weight based on loadable weight of (iv)/(ii) = (112050 mt./8294 NT)

1 NT = 13.50 say 14 mt.

The loadable capacity in volume and weight has been taken on per year basis.

(4) For the purposes of sub-rule (1)(c), incidental activities for the purpose of relevant shipping income are as follows, namely—

(a) Maritime Consultancy Charges – Maritime consultancy charges received by a shipping company in the course of business of operating ships in lieu of knowledge offered by it to other companies which do not possess such expertise and which may among other things include rendering advice on setting up of shipping business, ship designing and repair and business acquisition, etc.

(b) Income Earned from Loading/Unloading of Cargoes – Charges received for services in connection with loading and unloading of cargo to and from the ship (such charges being separate from the transit charges).

(c) Ship Management fees/remuneration for managed vessels – Fees or remuneration earned for providing services of operation and maintenance of vessels on behalf of other ship owners/agencies.

(d) Maritime Education/Recruitment fees – Training fees charged/earned by a shipping company by extending its surplus training facility to other personnel in the shipping industry and fees earned from foreign ship owners for rendering services by way of screening, interviewing, short-listing and recruitment of floating staff and officers.

(5) For the purposes of sub-rule (1)(d), illustrative example for calculation of average of net tonnage for computing the limit for charter-in is as follows:

Percentage of tonnage chartered-in: (17170000/30310000) X 100 = 56.65%. Since the percentage of net tonnage chartered in is more than 49%, as per section 232(15), the company’s option for tonnage tax scheme will cease to have effect.