Tonnage tax claim not for ship sale

Shipping companies will not be able to claim tonnage tax on revenues from selling ships, according to a notification by the government.

Earlier, shipping companies could claim benefits under Section 33 AC of the Income Tax Act, if the sale proceeds were utilised for acquisition within a year.

Selling ships is an integral part of the shipping business and ships are sold to earn revenues, especially during lean periods, industry sources said.

The notification, effective from April 1, has specified that the fees for maritime consultancy, maritime education, and handling of cargo and ship management will be considered as income from shipping activities, which will be subjected to tonnage tax.

On income from other sources, shipping companies will have to pay tax at the applicable corporate tax rate.

"We had suggested that the sale proceeds should be treated in a similar way as before," the Indian National Shippers' Association said.

The deemed tonnage for the purpose of calculation of tonnage tax will be calculated depending upon the cargo.

A unit of net tonnage will equal 2.5 TEU (twenty-foot equivalent units) of container cargo, 19 cubic metres of liquid cargo and 14 metric tonnes of bulk cargo. The total tonnage, which will qualify for the tax, will equal the net tonnage capacity of a vessel for inward and outbound journeys.

For calculating the in-chartering limit, the bare-boat-cum-demise (BBCD) charter has not been included. Under BBCD charter, on the lapse of a specific period, ownership of a vessel goes to the company chartering it.

During the specified period, the company buys the vessel by using income from operating the vessel. A company, whose share of in-chartering tonnage to total tonnage is more than 49 per cent, cannot be brought under the new tonnage tax regime.

Tonnage tax was introduced in 2004-05 with tax on shipping companies calculated on the basis of tonnage of ships instead of profits.

Shipping companies earlier used to claim deductions in their taxable income under Section 33 AC of the Income Act. This provision has now been deleted.

Tonnage crisis

---

• Earlier, shipping companies could claim benefits under Section 33 AC of the Income Tax Act, if the sale proceeds were utilised for acquisition within a year
• The notification has specified that the fees for maritime consultancy, maritime education, and handling of cargo and ship management will be considered as income from shipping activities, which will be subjected to tonnage tax