Section 228 · Special cases
Section 228 of the Income-tax Act, 2025 — Relevant Shipping Income and Exclusion from Book Profit
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter XIII
📜 What the law says — Section 228, Income-tax Act 2025
228. (1) For the purposes of this Part, the relevant shipping income of a tonnage
tax company means—
(a) its profits from core activities referred to in sub-section (3); and
(b) its profits from incidental activities referred to in sub-section (7).
(2) 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 for the purposes of this Part
and shall be taxable under the other provisions of this Act.
(3) The core activities of a tonnage tax company shall be—
(a) its activities from operating qualifying ships; and
(b) other ship-related or inland vessel related activities, as the case may be,
as follows:—
(i) shipping contracts in respect of—
(A) earning from pooling arrangements;
(B) contracts of affreightment;
38. Substituted for “certificate” by the Finance Act, 2026, w.e.f. 1-4-2026.
(ii) specific shipping trades, being—
(A) on-board or on-shore activities of passenger ships 39[or inland
vessels] comprising of fares and food and beverages consumed
on-board;
(B) slot charters, space charters, joint charters, feeder services
and container box leasing of container shipping.
(4) For the purposes of sub-section (3)(b)(i),—
(a) “pooling arrangement” means an agreement between two or more persons
for providing services through a pool or operating one or more ships
or inland vessels as the case may be, and sharing earnings or operating
profits on the basis of mutually agreed terms;
(b) “contract of affreightment” means a service contract under which a ton-
nage tax company agrees to transport a specified quantity of specified
products at a specified rate, between designated loading and discharging
ports over a specified period.
(5) The Central Government, if it considers necessary or expedient so to do, may,
by notification, exclude any activity referred to in sub-section (3)(b) or prescribe
the limit up to which such activities shall be included in the core activities for the
purposes of this section.
(6) Every notification issued under this Part shall be laid, as soon as may be after it
is issued, befor
In plain language
What Section 228 is about
Section 228 of the Income-tax Act, 2025 is part of the Tonnage Tax Scheme (Sections 226 to 232) — a special, optional way of taxing Indian shipping companies. Instead of paying tax on their actual accounting profit, qualifying shipping companies pay tax on a notional "tonnage income" fixed by the size (net tonnage) of their ships. Section 228 answers two crucial questions inside that scheme:
- What income actually falls inside the tonnage tax net — i.e., the "relevant shipping income" that is not taxed normally; and
- How that shipping income is kept out of "book profit" so it is not caught again under the Minimum Alternate Tax (MAT) machinery of Section 206.
It is the 2025 Act's consolidated version of the old Section 115VI (relevant shipping income) and Section 115VJ (common cost allocation) of the Income-tax Act, 1961, together with the MAT-exclusion that earlier flowed through Section 115JB.
Who it applies to
- Tonnage tax companies only — Indian shipping companies that have opted into the tonnage tax scheme and operate qualifying ships (and, from 1 April 2026, also qualifying inland vessels registered under the Inland Vessels Act, 2021).
- Companies that have not opted for tonnage tax are unaffected — they are taxed normally on business profits.
What counts as "relevant shipping income"
Relevant shipping income = profits from core activities + profits from incidental activities.
- Core activities — operating qualifying ships/inland vessels, and specified shipping trades such as pooling arrangements, contracts of affreightment, slot charters, container leasing, and on-board/on-shore activities of passenger ships (extended to inland vessels from FY 2026-27).
- Incidental activities — activities naturally connected with shipping, e.g. maritime consultancy, cargo handling, ship management and maritime training (as prescribed by rules).
The key limit — the 0.25% incidental-income cap
This is the single most important number in Section 228. Incidental income enjoys the tonnage tax shelter only up to 0.25% (one-fourth of one percent) of the turnover from core activities. Any incidental income above that 0.25% ceiling is stripped out of relevant shipping income and taxed under the normal provisions of the Act at the applicable corporate rate.
Exclusion from book profit (the MAT protection)
Book profit or loss from the tonnage tax activities is excluded from "book profit" for Section 206 (the MAT provision of the 2025 Act). This means the low tonnage income is not clawed back through MAT. Correspondingly, a book loss from shipping cannot be used to reduce MAT on the company's other (non-shipping) income.
Non-qualifying ships and the arm's-length rule
- Non-qualifying ships: If the company also runs ships/vessels that are not qualifying, income from them is computed under the ordinary provisions — not under tonnage tax.
- Close connection / arm's length: If, due to a close connection or arranged dealings, the tonnage tax business shows more than ordinary profits (to inflate the tax-sheltered income), the Assessing Officer can substitute a reasonable arm's-length figure.
- Common costs: Where a company runs both tonnage and non-tonnage business, common expenses and depreciation are apportioned on a reasonable basis so profits are not manipulated.
Practical implications
- Shipping companies get a predictable, tonnage-based tax that is usually far lower than tax on actual profits — and Section 228 makes sure MAT does not undo that benefit.
- Companies must watch the 0.25% incidental-income limit and maintain clean books separating core, incidental and non-tonnage income.
- Related-party pricing and cost allocation must be defensible; aggressive shifting invites AO adjustment.
💡 Example
Example 1 — The 0.25% incidental-income cap. Suppose "Sagar Shipping Ltd", a tonnage tax company, earns ₹200 crore turnover from core activities (operating qualifying ships). Its permitted incidental income shelter = 0.25% × ₹200 crore = ₹50 lakh. If Sagar earns ₹80 lakh of incidental income (say maritime consultancy and cargo handling), then ₹50 lakh stays inside relevant shipping income (sheltered under tonnage tax), while the excess ₹30 lakh is taxed normally under the general provisions at the company's applicable corporate rate.
Example 2 — MAT exclusion. Say Sagar's actual book profit for the year is ₹120 crore (of which ₹100 crore is from tonnage tax shipping activities and ₹20 crore from a non-shipping side business). Under Section 228, the ₹100 crore shipping book profit is excluded from book profit for Section 206 (MAT). So MAT, if applicable, is computed only on the ₹20 crore non-shipping book profit — not on the whole ₹120 crore. The tonnage tax benefit is preserved.
A relatable story. Meena runs a mid-sized shipping company from Mumbai. Earlier she dreaded year-end because her ships earned big profits but MAT ate into the tonnage tax savings. Her CA explained Section 228: the shipping book profit is carved out of MAT, and her small consultancy income is safe only up to 0.25% of core turnover. Meena restructured her side-consultancy billing to stay within the cap, kept separate ledgers for shipping and non-shipping, and documented her related-party charter rates at market value — sleeping easier knowing the scheme's benefit would survive an assessment.
| Item | Treatment under Section 228 | Key figure / condition |
|---|
| Profit from core activities | Part of relevant shipping income — sheltered under tonnage tax | Fully included |
| Incidental income within limit | Part of relevant shipping income — sheltered | Up to 0.25% of core turnover |
| Incidental income above limit | Excess taxed under normal provisions | Amount exceeding 0.25% of core turnover |
| Income from non-qualifying ships | Taxed under ordinary business provisions | Outside tonnage tax |
| Book profit from tonnage activities | Excluded from book profit | For MAT under Section 206 |
| Close-connection excess profit | AO substitutes arm's-length profit | Reasonable / ordinary profit |
Related sections
Section 226 — Tonnage tax scheme (option and operation) Section 227 — Computation of tonnage income from qualifying ships Section 232 — Conditions for applicability of tonnage tax scheme Section 206 — Minimum Alternate Tax (book profit) Section 115VI (1961 Act) — Relevant shipping income (predecessor) Section 115VJ (1961 Act) — Treatment of common costs (predecessor)
Frequently asked questions
What does Section 228 of the Income-tax Act, 2025 deal with?
It defines the 'relevant shipping income' of a tonnage tax company (profits from core and incidental activities) and excludes the tonnage tax book profit from the MAT computation under Section 206. It is the consolidated successor to Sections 115VI and 115VJ of the 1961 Act.
What is the 0.25% limit in Section 228?
Incidental income enjoys the tonnage tax shelter only up to 0.25% of the turnover from core activities. Any incidental income above this ceiling is taxed under the normal provisions of the Act, not under tonnage tax.
Does MAT apply to a tonnage tax company's shipping income?
No. Under Section 228, book profit derived from tonnage tax activities is excluded from book profit for Section 206 (MAT). MAT, if any, applies only to non-tonnage income of the company.
Are inland vessels covered by Section 228?
Yes, from 1 April 2026 (AY 2026-27). The scheme was extended to qualifying inland vessels registered under the Inland Vessels Act, 2021, and core-activity items like passenger on-board/on-shore services now include inland vessels.
How is income from non-qualifying ships taxed?
Income from operating ships or inland vessels that are not 'qualifying' does not get the tonnage tax benefit. It is computed and taxed under the ordinary provisions of the Income-tax Act, 2025.
Can the Assessing Officer change the shipping income figure?
Yes. If a close connection or arranged dealings make the tonnage tax business show more than ordinary profits, the AO can substitute a reasonable arm's-length figure to prevent artificial shifting of profit into the tax-sheltered tonnage business.
What is the 1961 Act equivalent of Section 228?
Section 228 largely consolidates Section 115VI (relevant shipping income and core/incidental activities) and Section 115VJ (common cost allocation) of the Income-tax Act, 1961, along with the MAT exclusion that earlier operated through Section 115JB.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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