Section 229 · Special cases
Section 229 of the Income-tax Act, 2025 — Depreciation and Gains Relating to Tonnage Tax Assets
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter XIII
📜 What the law says — Section 229, Income-tax Act 2025
229. (1) For the purposes of computing depreciation under section 230(1)(d), the
depreciation for the first tax year of the tonnage tax scheme (herein referred to
as the first tax year) shall be computed on the written down value of the qualifying
ships as specified under sub-section (2).
(2) The written down value of the block of assets, being ships or inland vessels,
as the case may be, as on the first day of the first tax year, shall be divided in the
ratio of the book written down value of the qualifying ships (herein referred to as
the qualifying assets) and the book written down value of the non-qualifying ships
(herein referred to as the other assets), as per the following formula:—
B
D=A×
B+C
C
E=A×
B+C
where,—
D = the written down value of the block of qualifying assets as on the first
day of the tax year;
E = the written down value of the block of other assets as on the first day of
the tax year;
A = the written down value of the existing block of assets, being ships or
inland vessel, as the case may be, as on the first day of the tax year;
B = the aggregate of book written down value of qualifying assets as on the
last day of the preceding tax year; and
C = the aggregate of the book written down value of other assets as on the
last day of the preceding tax year.
(3) The block of qualifying assets as determined under sub-section (2) shall consti-
tute a separate block of assets for the purposes of this Part.
(4) Where an asset forming part of a block of,—
(a) qualifying assets begins to be used for purposes other than the tonnage
tax business, an appropriate portion of the written down value alloca-
ble to such asset shall be reduced from the written down value of that
block and shall be added to the block of other assets as per the following
formula:—
C
A=B×
D
where,—
A = the appropriate portion of the written down value allo-
cable to the asset which begins to be used for purposes
other than the tonnage tax business;
B = the written down value of block of qualifying assets as
on the first day of the tax y
In plain language
What Section 229 is about
Section 229 of the Income-tax Act, 2025 is a machinery provision inside the tonnage tax scheme (the special presumptive regime for shipping companies, Sections 226 to 235). It answers one narrow but important question: how do you treat depreciation, the written down value (WDV) of ships, and capital gains on ships that are inside the tonnage tax business? It is the successor to Section 115VK of the Income-tax Act, 1961 and applies from 1 April 2026.
The tonnage tax scheme lets a qualifying shipping company pay tax on a notional (presumptive) tonnage income based on the size of each ship and the days it is operated, instead of its actual book/taxable profit. Because the income is presumptive, the company does not separately claim a depreciation deduction on its qualifying ships. Section 229 makes sure depreciation is still accounted for notionally, so that WDV keeps reducing and the correct cost is available if the ship is ever sold or moves out of the scheme.
Who it applies to
- Tonnage tax companies — Indian shipping companies that have validly opted into the tonnage tax scheme and operate qualifying ships (and, after the Finance Act, 2025 extension, qualifying inland vessels).
- Companies that own both qualifying ships (used in the tonnage business) and other/non-qualifying assets, because the section governs how the single "ships" block is split.
- Companies exiting the scheme or transferring/selling a qualifying ship, since the apportioned WDV becomes the cost basis.
Key rules and conditions
- Depreciation is deemed allowed, not separately deducted. On qualifying ships, depreciation is computed and the WDV is reduced as if the deduction had actually been claimed and allowed under the normal depreciation provisions — even though the company gets no separate deduction because it is on presumptive tonnage income.
- Splitting the block on entry. On the first day of the first tax year under the scheme, the WDV of the block of assets being ships is divided in the ratio of the book WDV of qualifying ships to the book WDV of non-qualifying ships.
- Separate block. The qualifying ships so carved out form a separate block of assets for the purposes of this Part. This ring-fences tonnage-tax depreciation from normal-business depreciation.
- Assets moving between uses. If a ship shifts from non-qualifying to qualifying use (or back), its WDV is re-allocated between blocks using the book WDV, and where the change happens mid-year, depreciation for that year is split in the ratio of the number of days in each use.
- Capital gains. When a qualifying ship is transferred, capital gains are computed under the normal capital-gains provisions (Sections 67–91 of the 2025 Act), using the apportioned WDV so that no artificial gain or loss is created by the regime change.
How it interacts with other sections
- Section 227 (tonnage income): Because income is presumptive under Section 227, depreciation cannot be claimed separately — Section 229 fills the gap by tracking WDV notionally.
- Section 230 (exclusion of deduction, loss, set-off): Reinforces that losses and deductions relating to qualifying ships are not separately allowed/carried forward while in the scheme.
- Normal depreciation and block-of-assets rules: The concept of "block of assets" and rate-based WDV depreciation is borrowed from the general scheme, but the qualifying-ships block is kept separate.
Practical implications
- Shipping companies must maintain a separate depreciation register for qualifying ships, reducing WDV every year even though no deduction is taken.
- On exit from the scheme, the notionally reduced WDV is the value that carries forward into the normal regime — you cannot "reset" the ship to its original cost to grab fresh depreciation.
- On sale of a ship, the low, depreciated WDV can mean a larger taxable capital gain, so exit and disposal timing matter for tax planning.
- Accurate book WDV records at entry are critical, because the entire apportionment formula depends on them.
💡 Example
Worked example 1 — splitting the block on entry. Oceanic Shipping Ltd opts into the tonnage tax scheme from 1 April 2026. On that date its single "ships" block has a tax WDV of ₹100 crore. In its books, qualifying ships have a book WDV of ₹80 crore and non-qualifying ships ₹20 crore (ratio 80:20). Under Section 229, the ₹100 crore tax WDV is split in the same ratio: ₹80 crore goes to a new separate block of qualifying assets and ₹20 crore stays with the non-qualifying block. The company claims normal depreciation only on the ₹20 crore non-qualifying block; on the ₹80 crore qualifying block, depreciation (say 20% = ₹16 crore) is notionally allowed — no deduction is taken, but the qualifying-block WDV drops to ₹64 crore.
Worked example 2 — capital gain on sale. Two years later Oceanic sells one qualifying ship. Because depreciation was notionally charged each year, its apportioned WDV has fallen to, say, ₹40 crore. It sells for ₹55 crore. The ₹15 crore excess is taxed as capital gains under the normal capital-gains provisions, using the ₹40 crore apportioned WDV as cost. The company cannot argue for a higher original cost to reduce the gain — Section 229 locks in the notionally depreciated value.
A relatable story. Think of Kabir, who runs a small cargo-vessel company. When he joined tonnage tax, he assumed "no depreciation deduction means my ship's value stays at its purchase price forever." Years later he sold the vessel and was shocked at the capital-gains bill. His CA explained Section 229: even though he never claimed depreciation, the law kept quietly shrinking the ship's WDV each year as if he had. The lesson — under tonnage tax, depreciation is invisible but never absent.
| Aspect | Treatment under Section 229 (Act 2025) | 1961 Act equivalent |
|---|
| Depreciation on qualifying ships | Notionally computed; WDV reduced as if allowed, but no separate deduction | Section 115VK |
| Splitting the ships block on entry | WDV split in ratio of book WDV of qualifying vs non-qualifying ships | Section 115VK(2) |
| Qualifying ships block | Forms a separate block of assets | Section 115VK(3) |
| Mid-year change of use | Depreciation apportioned in ratio of number of days in each use | Section 115VK |
| Capital gain on transfer | Normal capital-gains provisions on apportioned WDV | General provisions read with 115VK |
| Effective from | 1 April 2026 | Applicable till AY 2026-27 |
Related sections
Section 226 — Tonnage tax scheme (opting in) Section 227 — Computation of tonnage income Section 228 — Relevant shipping income and book profit Section 230 — Exclusion of deduction, loss and set-off Section 232 — Conditions for applicability of tonnage tax Section 233 — Amalgamation and demerger of tonnage tax companies
Frequently asked questions
Can a shipping company claim depreciation on its qualifying ships under tonnage tax?
No. Under the tonnage tax scheme income is presumptive, so no separate depreciation deduction is allowed on qualifying ships. Section 229 only computes depreciation notionally to keep reducing the ship's written down value (WDV).
If depreciation is not deducted, why does Section 229 still reduce the WDV?
Because the WDV must reflect the true, used-up value of the ship for when it is sold or when the company leaves the scheme. The law treats depreciation as if it were allowed, so the company cannot later reset the ship to its full original cost.
How is the block of ships split when a company enters the scheme?
On the first day of the first tonnage tax year, the tax WDV of the ships block is divided in the ratio of the book WDV of qualifying ships to non-qualifying ships. The qualifying portion then becomes a separate block of assets.
What happens to WDV when I sell a qualifying ship?
Capital gains are computed under the normal capital-gains provisions using the apportioned, notionally depreciated WDV as the cost. Because that WDV is low, the taxable gain can be higher than owners expect.
What if a ship changes from non-qualifying to qualifying use during the year?
Its WDV is re-allocated between the blocks based on book WDV, and depreciation for that year is split in the ratio of the number of days the ship was in each type of use.
Is Section 229 the same as Section 115VK of the old Act?
Yes, in substance. Section 229 of the Income-tax Act, 2025 replaces Section 115VK of the 1961 Act, keeping the same logic but stating the apportionment and block rules more clearly. It applies from 1 April 2026.
Does Section 229 apply to inland vessels?
The tonnage tax benefit was extended to qualifying inland vessels registered under the Inland Vessels Act, 2021 (aligned from 1 April 2026), so the depreciation and WDV mechanics of Section 229 apply to such vessels operated under the scheme as well.
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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