Section 228 — Relevant shipping income and exclusion from book profit. Successor to s.115V, s.115VJ of the 1961 Act.
Section 228 is in Chapter XIII — Determination of Tax in Special Cases, which runs from section 190 to section 235.
Sub-section (1) defines the relevant shipping income of a tonnage tax company as its profits from core activities under sub-section (3) and from incidental activities under sub-section (7). Sub-section (2) caps the incidental limb: where those incomes exceed 0.25% of the turnover from core activities, the excess does not form part of relevant shipping income and is taxable under the other provisions of the Act.
Sub-section (3) sets out the core activities — operating qualifying ships, and specified other ship-related or inland vessel related activities: earnings from pooling arrangements and contracts of affreightment, and specific shipping trades being on-board or on-shore activities of passenger ships or inland vessels comprising fares and food and beverages consumed on board, and slot charters, space charters, joint charters, feeder services and container box leasing. The words "or inland vessels" were inserted by Act No. 4 of 2026 with effect from 1 April 2026. Sub-section (4) defines a pooling arrangement and a contract of affreightment. Sub-section (5) lets the Central Government by notification exclude any activity in sub-section (3)(b) or prescribe the limit up to which such activities are included in core activities, and sub-section (6) requires every notification under this Part to be laid before each House of Parliament for a total period of thirty days. Sub-section (7) leaves incidental activities to be prescribed.
Sub-sections (8) to (15) protect the boundary of the regime. Income from a non-qualifying ship or inland vessel is computed under the other provisions of the Act. Where goods or services move between the tonnage tax business and another business of the same company at a recorded consideration not corresponding to market value — the price they would ordinarily fetch on sale in the open market — relevant shipping income is computed as if the transfer had been at that value, and where this presents exceptional difficulties the Assessing Officer may compute on such reasonable basis as he considers fit. Where a close connection or any other reason produces more than ordinary profits to the tonnage tax business, the Officer shall take the income as may reasonably be deemed to have been derived. A loss in relevant shipping income is ignored for computing tonnage income; common costs are determined on a reasonable basis; and depreciation on a non-qualifying asset not used exclusively for the tonnage tax business is allocated in a fair proportion determined by the Assessing Officer.
Sub-section (16) excludes the book profit or loss derived from the activities referred to in sub-section (1) from the company's book profit for section 206(1)(c).
Tonnage taxation replaces ordinary profit computation for shipping, so the Act must say precisely which income enters the regime or unrelated profits would be sheltered behind a qualifying ship. Sub-section (2) is the quantitative boundary and sub-sections (8) to (15) the qualitative ones, so that profit cannot be moved into the regime by pricing or allocation. Sub-section (16) keeps the same income out of book profit so the relief is not withdrawn through the minimum tax computation.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Cap on incidental income within relevant shipping income | 0.25% of the turnover from core activities | Where the aggregate of incidental incomes under sub-section (1)(b) exceeds this, the excess is excluded and taxed under the other provisions of the Act | Sub-section (2) |
| Period for which a notification under this Part must be laid before Parliament | A total period of thirty days | Which may be comprised in one session or in two or more successive sessions; both Houses may modify or annul it | Sub-section (6) |
The 0.25% test measures incidental income against turnover from core activities, not against total income or core profits, and only the excess is thrown out. Which activities count as core is not settled by sub-section (3) alone: sub-section (5) lets the Central Government exclude any of the sub-section (3)(b) activities or prescribe a limit, so the list is a ceiling the rules can narrow, and incidental activities are not listed at all. Sub-sections (9) and (12) are one-way adjustments protecting the ordinary computation, displacing recorded consideration by market value and substituting income reasonably deemed derived where a close connection inflates the tonnage result. A loss in relevant shipping income is simply ignored under sub-section (13), and sub-section (16) keeps the tonnage result out of book profit for section 206(1)(c).
A tonnage tax company has turnover from core activities of Rs. 400 crore and incidental incomes of Rs. 1.5 crore. The cap is 0.25% of Rs. 400 crore, that is Rs. 1 crore, so Rs. 1 crore stays within relevant shipping income and Rs. 50 lakh is taxed under the other provisions of the Act. If the same company transfers services to a non-shipping business of its own at a recorded price below what they would ordinarily fetch in the open market, sub-section (9) requires the computation to proceed as if the transfer had been at market value.
You meet this section in the computation supporting a tonnage tax company's return, where relevant shipping income is separated from income taxable under the ordinary provisions, and in an assessment applying sub-section (9), (11), (12) or (15) to reprice an inter-business transfer or reallocate common costs and depreciation.
Where the aggregate of all such incomes specified in sub-section (1)(b) exceeds 0.25% of the turnover from core activities referred to in sub-section (3), such excess shall not form part of the relevant shipping income
in case the relevant shipping income of a tonnage tax company is a loss, then, such loss shall be ignored for the purposes of computing tonnage income
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
