Section 231 · Special cases
Section 231 of the Income-tax Act, 2025 — Method of Opting for the Tonnage Tax Scheme and Its Validity
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter XIII
📜 What the law says — Section 231, Income-tax Act 2025
231. (1) A qualifying company may opt for the tonnage tax scheme by making
an application to the Joint Commissioner having jurisdiction over the company
in the form and manner, as may be prescribed, for such scheme.
(2) A qualifying company may make an application within three months, of the
date of its incorporation, or of the date on which it becomes a qualifying company
for the first time.
(3) A Unit of an International Financial Services Centre which has availed of
deduction under section 147 may make an application within three months from
the date on which such deduction ceases.
(4) On receipt of an application for option for tonnage tax scheme under sub-section
(1), the Joint Commissioner may call for such information or documents from the
company as he thinks necessary in order to satisfy himself about the eligibility of
the company and after satisfying himself about such eligibility of the company to
make such option for tonnage tax scheme, he shall pass an order in writing—
(a) approving the option for tonnage tax scheme; or
(b) refusing to approve the option for tonnage tax scheme, if he is not so
satisfied,
and a copy of such order shall be sent to the applicant.
(5) No order under sub-section (4)(b) shall be passed unless the applicant has been
given a reasonable opportunity of being heard.
(6) Every order under sub-section (4) shall be passed before the expiry of three
months from the end of the quarter in which the application under sub-section (1)
was received.
(7) Where an order granting approval is passed under sub-section (4), the provi-
sions of this Part shall apply from the tax year in which the option for tonnage tax
scheme is exercised.
(8) An option for tonnage tax scheme, after it has been approved under sub-section
(4), shall remain in force for ten years from the date on which such option has been
exercised and shall be taken into account from the tax year in which such option
is exercised.
(9) An option for tonnage tax scheme shall cease to have effect from the tax year,
in which—
(a) the qualifying company ceases to be a qualifying company;
(b) a default is made in complying with the provisions contained in section
232(1) to (20);
(c) the tonnage tax company is excluded from the tonnage tax scheme under
section 234;
(d) the qualifying company furnishes to the Assessing Officer, a declaration
in writing to the effect that the provisions
In plain language
What Section 231 is about
Section 231 of the Income-tax Act, 2025 lays down the procedure, time limits and validity for a shipping company to opt into the tonnage tax scheme — the special presumptive regime for shipping companies contained in Chapter XII-G (Sections 227 to 240) of the new Act. Under tonnage tax, a qualifying shipping company pays tax not on its actual book profits from operating ships, but on a notional (deemed) income calculated on the net registered tonnage of each ship. Section 231 is the "gateway" section — it tells you how to apply, when to apply, who approves the application, and how long the option lasts.
In simple terms: the tonnage tax benefit is not automatic. A company must consciously opt in by filing a prescribed application. Section 231 governs that opt-in mechanism. It is the direct successor to Section 115VP of the Income-tax Act, 1961 (read with 115VQ on validity and 115VR on renewal), and the substance is broadly the same.
Who it applies to
- Qualifying companies — an Indian company whose place of effective management is in India, that owns at least one qualifying ship, and whose main object is operating ships (as defined in the Chapter).
- Companies operating inland vessels are also covered under the widened scope of the 2025 regime.
- IFSC (GIFT City) units that had earlier claimed the deduction under Section 147 — they get a special window to opt in once that deduction ceases.
How to opt in (the mechanism)
- File an application to the Joint Commissioner having jurisdiction over the company, in the prescribed form and manner. The prescribed form is Form 80 under the 2025 rules (the equivalent of the old Form 65 under the 1961 Act).
- Time limit for a new company: within three months of the date of incorporation, or of the date on which it first becomes a qualifying company.
- IFSC units: within three months from the date on which the Section 147 deduction ceases.
Approval by the Joint Commissioner
- The Joint Commissioner examines the application and either approves it (if satisfied the company and its ships qualify) or refuses it by a written order.
- An order of refusal cannot be passed without giving the company a reasonable opportunity of being heard — a natural-justice safeguard.
- The order (approval or refusal) must be passed within the statutory time limit. Under the 1961 Act this was one month from the end of the month in which the application was received; taxpayers should confirm the exact limit in the 2025 Rules, as the wording has been re-drafted.
Validity — the ten-year lock-in
- Once approved, the option remains in force for ten years from the date it becomes effective.
- The scheme is a binding, long-term commitment — you cannot casually flip between tonnage tax and normal computation year to year.
- The option ceases if the company stops being a qualifying company, defaults on the scheme conditions, is excluded by the tax authorities, or voluntarily opts out.
Renewal
- The option can be renewed within one year from the end of the tax year in which the existing option ceases to have effect. The same application and approval machinery applies to a renewal as to a fresh option.
The important exit penalty
A key practical warning: if a company opts out of the scheme, or is excluded because it defaulted, it is barred from opting into tonnage tax again for ten years. This makes the initial decision very serious. Tonnage tax is beneficial when a shipping company is highly profitable (because deemed income is usually far lower than actual profits), but during a downturn a company is still locked into paying tax on notional tonnage income even if it made losses. Section 231 must therefore be read together with Section 232 (conditions for applicability), and the computation and exit provisions of the Chapter.
Practical implications
- Missing the three-month window is fatal for that year — plan the application at incorporation.
- File a complete Form 80 with ship registration, tonnage certificates and DG Shipping documents to avoid refusal.
- Diarise the ten-year expiry and the one-year renewal window so the benefit is not lost.
💡 Example
Worked example 1 — the opt-in timeline. Sagar Shipping Pvt. Ltd. is incorporated on 15 April 2026 and immediately becomes a qualifying company owning one 25,000-tonne bulk carrier. Under Section 231 it must file Form 80 to the Joint Commissioner within three months, i.e. by 14 July 2026. It files on 30 June 2026. The Joint Commissioner reviews and approves the option. The option then remains valid for ten years, i.e. up to the tax year 2036-37, after which Sagar must renew within one year to continue.
Worked example 2 — why companies choose it. Suppose Sagar earns actual shipping profit of ₹40 crore in a year. Under the normal regime at, say, an effective 25% corporate rate, tax would be roughly ₹10 crore. Under tonnage tax the taxable income is a small deemed figure based only on the ship's tonnage and days operated — often only a few lakh rupees per ship — so the tax may be a fraction of ₹10 crore. That gap is exactly why profitable shipping lines opt in via Section 231. (Figures are illustrative; actual deemed income depends on the daily tonnage slabs in the Chapter.)
A relatable story. Kapoor Marine, a family shipping business, forgot to file the option within three months of becoming a qualifying company and lost tonnage tax for that year. Worse, two years later, facing a freight-rate crash, they voluntarily opted out to save cash. They then discovered Section 231's sting: the ten-year re-entry bar meant that when freight rates recovered, they could not get back into the lucrative scheme for a decade. The lesson — treat the Section 231 opt-in and opt-out decisions as long-horizon commitments, not annual ones.
| Item | Section 231 rule (2025 Act) | 1961 Act equivalent |
|---|
| Who applies | Qualifying company (incl. inland vessels; IFSC units) | Qualifying company (Sec 115VP) |
| Authority | Joint Commissioner with jurisdiction | Joint Commissioner |
| Form | Form 80 | Form 65 |
| Time to apply (new) | Within 3 months of incorporation / becoming qualifying | Within 3 months |
| IFSC unit window | Within 3 months of Sec 147 deduction ceasing | Not applicable |
| Hearing before refusal | Mandatory (natural justice) | Mandatory |
| Validity of option | 10 years from effective date | 10 years (Sec 115VQ) |
| Renewal window | Within 1 year from end of tax year option ceases | Sec 115VR |
| Re-entry bar after opt-out/exclusion | 10 years | 10 years |
Related sections
Section 227 — Tonnage tax scheme (definitions and scope) Section 230 — Computation of tonnage income Section 232 — Conditions for applicability of tonnage tax scheme Section 233 — Amalgamation and demerger of tonnage tax companies Section 147 — Deduction for IFSC (GIFT City) units Section 239 — Exclusion from tonnage tax scheme
Frequently asked questions
What is Section 231 of the Income-tax Act, 2025?
It sets out how a qualifying shipping company opts into the tonnage tax scheme, the time limit to apply, approval by the Joint Commissioner, and the ten-year validity of the option. It corresponds to Section 115VP of the 1961 Act.
Which form is used to opt for the tonnage tax scheme?
Form 80 is prescribed under the 2025 Act for exercising or renewing the tonnage tax option, replacing the earlier Form 65. It is filed with the Joint Commissioner having jurisdiction over the company.
How long is the tonnage tax option valid?
Once approved, the option remains in force for ten years from the date it becomes effective. It can then be renewed within one year from the end of the tax year in which it ceases to have effect.
What is the time limit to apply for the tonnage tax scheme?
A new company must apply within three months of its incorporation or of the date it first becomes a qualifying company. IFSC units get three months from the date their Section 147 deduction ceases.
Can the Joint Commissioner reject the application?
Yes, the Joint Commissioner can refuse the option by a written order, but only after giving the company a reasonable opportunity of being heard, as required by natural justice.
What happens if a company opts out of the tonnage tax scheme?
If a company opts out or is excluded for default, it cannot opt back into the tonnage tax scheme for ten years. This makes the entry and exit decisions long-term commitments to weigh carefully.
Does the tonnage tax scheme cover inland vessels?
Yes, the 2025 regime widened the scope to include companies operating inland vessels, in addition to sea-going qualifying ships, subject to the conditions of the Chapter.
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.
💬 Discussion & questions
0 comments · Ask anything about this — a Chartered Accountant or the community will reply.
Have a doubt about this (Section 231)? Ask here 👇
Free · takes 20 seconds · our CA answers. No account needed.
No comments yet — be the first to ask. 👆
EaseValue