What Is the Tonnage Tax Exit Rule?
Tonnage tax scheme (TTS) is a concessional tax regime for Indian shipping companies. But what happens when a company wants to exit this scheme?
The Income Tax Bill, 2025, via Clause 231(8)–(9), proposes a streamlined exit process, replacing Section 115VQ of the existing Income-tax Act, 1961.
Let’s break it down for clarity.
Clause 231(8)-(9) vs Section 115VQ What’s Changing?
| Aspect | Section 115VQ (1961 Act) | Clause 231(8)-(9) (2025 Bill) |
|---|---|---|
| Minimum period of TTS | 10 years compulsory | 10 years compulsory (retained) |
| Exit before 10 years | Not allowed | Still not allowed |
| Exit after 10 years | Allowed by filing declaration before due date | Allowed similarly |
| Re-entry restriction | Cannot re-enter for 10 years after exit | Retained |
| Additional conditions | Must file declaration in prescribed manner & time | To follow new procedural rules under Income-tax Rules, 2025 |
| Penalty on premature exit | No express penalty, but disqualification applies | Same disqualification logic continues |
| Who can opt again? | Only after 10-year lockout post-exit | Same condition retained |
How to Exit Tonnage Tax Under the New Bill (Step-by-Step)
- Complete 10 years under the tonnage tax scheme.
- File a written declaration for opting out before the due date of ITR.
- Follow procedural rules that will be notified under Income-tax Rules, 2025.
- Do not opt-in again for 10 years post-exit.
When Can a Shipping Company Exit Tonnage Tax?
A company can exit only after completing 10 years, just like the old law. This rule prevents misuse of concessional taxation.
Legal Reference
- Section 115VQ, Income-tax Act, 1961
- Clause 231(8)-(9), Draft Income-tax Bill, 2025
- Official Draft Income Tax Bill – Ministry of Finance
Tip from Maritime Tax Consultant
“Most companies miscalculate the financial impact of switching out of TTS. You must plan a 3-year forecast post-exit before filing your declaration.”
Summary
The Income Tax Bill, 2025 retains the 10-year lock-in for tonnage tax scheme exit. Clause 231(8)-(9) mirrors Section 115VQ of the 1961 Act but modernizes procedural rules for opting out, ensuring continuity and legal clarity for Indian shipping companies.
FAQs
Q1: Can I exit TTS before 10 years?
No, premature exit is not permitted under either the old or new law.
Q2: Can I re-enter after exiting TTS?
Only after 10 years of staying out of the scheme.
Q3: Will there be a notification for the new procedure?
Yes, procedural forms and timelines will be notified under Income-tax Rules, 2025.
What Should Companies Do Now?
If you’re nearing the 10-year mark under the TTS, start preparing your financial projections and declaration documents. Need help with compliance?