Section 235 · Special cases
Section 235 of the Income-tax Act, 2025 — Interpretation (Tonnage Tax Chapter Definitions)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter XIII
📜 What the law says — Section 235, Income-tax Act 2025
235. For the purposes of this Part,—
(a) “bareboat charter” means hiring of a ship or inland vessel, as the case may
be, for a stipulated period on terms which give the charterer possession
and control of the ship or inland vessel, as the case may be, including
the right to appoint the master and crew;
(b) “bareboat charter-cum-demise” means a bareboat charter where the
ownership of the ship or inland vessel, as the case may be, is intended
to be transferred after a specified period to the company to whom it has
been chartered;
(c) “Director-General of Shipping” means the Director-General of Shipping
appointed by the Central Government under section 7(1) of the Merchant
Shipping Act, 1958 (44 of 1958);
(d) “factory ship” includes a vessel providing processing services in respect
of processing of the fishing produce;
(e) “fishing vessel” shall have the meaning assigned to it in section 3(12) of
the Merchant Shipping Act, 1958 (44 of 1958);
(f) “inland vessel” shall have the meaning assigned to it in section 3(q) of
the Inland Vessels Act, 2021 (24 of 2021);
42
[(fa) “Inland Waterways Authority of India” shall have the same meaning as
assigned to it in section 3 of the Inland Waterways Authority of India Act,
1985 (82 of 1985);]
(g) “pleasure craft” means a ship or inland vessel, as the case may be, of a
kind whose primary use is for the purposes of sport or recreation;
(h) “qualifying company” means a company, if—
(i) it is an Indian company;
(ii) the place of effective management of the company is in India;
42. Inserted by the Finance Act, 2026, w.e.f. 1-4-2026.
(iii) it owns at least one qualifying ship; and
(iv) the main object of the company is to carry on the business of
operating ships,
and for the purposes of sub-clause (ii), “place of effective management
of the company” means—
(A) the place where the board of directors of the company or its exec-
utive directors, make their decisions; or
(B) in a case where the board of directors routinely approve the com-
mercial and strategic decisions made by the executive directors or
officers of the company, the place wh
In plain language
What Section 235 actually is
Section 235 is the definitions (interpretation) clause for the tonnage tax chapter of the Income-tax Act, 2025 (effective 1 April 2026). It does not by itself impose any tax or grant any deduction. Instead, it is the dictionary you must read alongside every other tonnage tax section (Sections 226 to 234, dealing with the scheme, computation of tonnage income, conditions, and exit rules). It is the direct successor to Section 115V of the Income-tax Act, 1961, which opened the old Chapter XII-G.
In plain terms: the tonnage tax scheme lets an Indian shipping company pay tax on a notional (presumptive) income based on the tonnage of its ships, rather than on actual book profits. Whether a company, a ship, or an activity qualifies for that generous regime depends entirely on how the words are defined here in Section 235.
Who this applies to
- Indian shipping companies that operate ships or (newly) inland vessels and want to opt into tonnage taxation.
- Tax officers and consultants testing whether a vessel is a "qualifying ship" and a company is a "qualifying company".
- Inland water transport operators — a major 2025-26 expansion brought inland vessels (under the Inland Vessels Act, 2021) into the scheme for the first time.
The key defined terms
- Qualifying company: an Indian company, with its place of effective management in India, that owns at least one qualifying ship and carries on the business of operating ships.
- Qualifying ship: a seagoing ship or inland vessel of 15 net tonnage or more, properly registered (under the Merchant Shipping Act, 1958, or the Inland Vessels Act, 2021, or licensed by the Director-General of Shipping), and holding a valid certificate showing its net tonnage.
- Excluded vessels (NOT qualifying ships): vessels mainly providing land-based services, fishing vessels, factory ships (which process fish), pleasure craft (sport/recreation), harbour and river ferries, and offshore installations.
- Bareboat charter: hiring a ship/inland vessel for a fixed period on terms giving the charterer possession and control. Bareboat charter-cum-demise: the same, but ownership transfers to the charterer after a set period.
- Tonnage income / tonnage tax business / tonnage tax scheme: the notional income, the qualifying-ship operating business, and the overall statutory framework respectively.
- Inland vessel: as defined in the Inland Vessels Act, 2021 — the headline expansion of the 2025 Act.
How it interacts with the rest of the chapter
Every operative rule leans on these definitions. Section 226 offers the scheme only to a "qualifying company"; the computation of "tonnage income" flows from a "qualifying ship"; and the conditions section polices things like the fishing-use limit — if a ship is used as a fishing vessel for more than 30 days in a year, it can lose qualifying status. The definitions of bareboat charter feed into the charter-in tonnage limits (a company cannot have more than a set proportion of chartered-in tonnage).
2026 amendment to watch
The Finance Act, 2026 is understood to insert a definition of the "Inland Waterways Authority of India" (aligned with the Inland Waterways Authority of India Act, 1985) into this section, further embedding inland water transport into the tonnage regime. Treat the exact sub-clause lettering cautiously and confirm against the notified bare Act.
Practical implications
- Getting the net-tonnage certificate and correct registration is the gateway — no valid certificate, no qualifying ship, no scheme.
- Companies must ensure their place of effective management is genuinely in India to stay a qualifying company.
- Inland vessel operators (barges, cargo boats on national waterways) should now assess whether tonnage taxation beats normal computation.
💡 Example
Worked example 1 — a qualifying seagoing ship. Oceanic Shipping Ltd is an Indian company managed from Mumbai and owns a container ship of 25,000 net tonnage, registered under the Merchant Shipping Act, 1958, with a valid tonnage certificate. Because the company is Indian with effective management in India and owns a ship above 15 net tonnage that is not excluded, it is a "qualifying company" operating a "qualifying ship" under Section 235. It can therefore opt into the tonnage tax scheme and compute tonnage income on a presumptive per-tonne, per-day basis instead of on its actual audited profit of, say, ₹40 crore.
Worked example 2 — a vessel that fails the test. Coastal Foods Ltd owns a 4,000 net tonnage factory ship that catches and processes fish at sea. Even though it easily crosses the 15 net tonnage threshold and is Indian-owned, a factory ship is expressly excluded from "qualifying ship" in Section 235. So Coastal Foods cannot use the tonnage tax scheme and must compute income normally under the regular business heads.
A short story. Ravi runs a small firm ferrying cargo on the Ganga waterway using a 40 net tonnage inland vessel registered under the Inland Vessels Act, 2021. Until recently he assumed the tonnage scheme was only for big ocean liners. His CA points to Section 235 of the 2025 Act, which now folds "inland vessel" into the definition of qualifying ship. Ravi's vessel clears 15 net tonnage, is properly registered and certified, and is not a ferry or pleasure craft — so his company can now consider opting into tonnage taxation, potentially simplifying and reducing his tax outgo.
| Defined term | What it means (simplified) | Why it matters |
|---|
| Qualifying company | Indian company, effective management in India, owns 1+ qualifying ship, operates ships | Only such a company can opt into the scheme |
| Qualifying ship | Seagoing/inland vessel, 15 net tonnage or more, registered, valid net-tonnage certificate | Gateway to computing tonnage income |
| Excluded vessels | Fishing vessels, factory ships, pleasure craft, ferries, offshore installations, land-service vessels | These can never be qualifying ships |
| Inland vessel | As per Inland Vessels Act, 2021 | New 2025-26 expansion of the scheme |
| Bareboat charter | Hire for a fixed period with possession and control | Feeds charter-in tonnage limits |
| Tonnage tax scheme | Presumptive taxation framework for shipping | The regime these definitions unlock |
Related sections
Section 226 — Tonnage tax scheme (option to opt in) Section 227 — Computation of tonnage income Section 228 — Relevant shipping income and tonnage tax activities Section 231 — Application (Form 80) for the tonnage tax scheme Section 232 — Conditions for applicability of the scheme Section 115V (1961 Act) — Old interpretation clause for Chapter XII-G
Frequently asked questions
What does Section 235 of the Income-tax Act, 2025 deal with?
It is the interpretation (definitions) clause for the tonnage tax chapter. It defines terms like qualifying company, qualifying ship, tonnage income, bareboat charter and inland vessel that the rest of the shipping-tax provisions rely on.
What is the minimum size for a ship to qualify?
A qualifying ship must be a seagoing ship or inland vessel of 15 net tonnage or more, be properly registered, and hold a valid certificate indicating its net tonnage.
Which vessels can never use the tonnage tax scheme?
Fishing vessels, factory ships, pleasure craft, harbour and river ferries, offshore installations, and vessels mainly providing land-based services are all excluded from the definition of qualifying ship.
Are inland vessels covered under the 2025 Act?
Yes. A major change from the old law is that inland vessels (as defined in the Inland Vessels Act, 2021) are now included, so inland water transport operators can potentially opt into the tonnage tax scheme.
What is the 1961 Act equivalent of Section 235?
Section 235 corresponds to Section 115V of the Income-tax Act, 1961, which was the opening definitions provision of the old Chapter XII-G on tonnage taxation.
Does Section 235 by itself reduce my tax?
No. It only defines terms. The actual presumptive computation and the option to be taxed on tonnage come from the operative sections (such as Sections 226 and 227) that use these definitions.
Can a ship lose its qualifying status if used for fishing?
Yes. Under the chapter's conditions, if a ship is used as a fishing vessel for more than 30 days in a year, it can cease to be a qualifying ship for that year. Confirm the precise limit against the notified bare Act.
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 235)? Ask here 👇
Free · takes 20 seconds · our CA answers. No account needed.
No comments yet — be the first to ask. 👆
EaseValue