Extension of Tonnage Tax to Inland Vessels: Finance Bill, 2026 Amendments Explained
The tonnage tax regime for shipping companies under Chapter XIII-G of the Income-tax Act, 2025 has been significantly realigned to accommodate inland water transport. While the Finance Act, 2025 had already extended the tonnage tax scheme to inland vessels registered under the Inland Vessels Act, 2021, several technical and procedural provisions needed updating to fit the specific regulatory structure governing inland waterways.
The Finance Bill, 2026, therefore, proposes a set of targeted amendments to Section 227, Section 228, Section 232 and Section 235 of the Income-tax Act, 2025. These changes aim to ensure that inland vessels can practically and seamlessly avail the tonnage tax scheme from 1 April 2026, corresponding to tax year 2026–27 onwards.
Background: Tonnage Tax and Inland Water Transport
Chapter XIII-G of the Income-tax Act provides a separate tax computation mechanism for qualifying shipping companies. Instead of taxing actual business profits, income is computed on a presumptive basis linked to the net tonnage of eligible ships. This is intended to provide certainty, simplify compliance, and improve competitiveness of the shipping sector.
Through the Finance Act, 2025, this concessional regime was extended to inland vessels registered under the Inland Vessels Act, 2021 to promote use of inland waterways as an efficient and environment-friendly mode of cargo and passenger movement. However, the original tonnage tax framework was designed around sea-going vessels regulated primarily under the Merchant Shipping Act, 1958 and did not fully reflect the inland waterways regulatory architecture.
The Finance Bill, 2026 now addresses this gap by aligning statutory references, compliance conditions, and definitions with the Inland Vessels Act, 2021 and the role of Inland Waterways Authority of India, as well as designated State authorities.
Key Objective of the Amendments
The proposed changes primarily focus on:
- Clarifying what constitutes a “valid certificate” for inland vessels for tonnage purposes
- Explicitly expanding core activities to cover inland vessels
- Updating training and certification requirements to include inland waterways regulators
- Aligning tonnage computation methodology with the Inland Waterways Authority of India
- Introducing a formal definition of Inland Waterways Authority of India in Chapter XIII-G
All the amendments are proposed to be effective from 1 April 2026, applicable from tax year 2026–27 and subsequent years.
Amendments to Section 227: Computation of Tonnage Income
Section 227 deals with the method of computing tonnage income, the central concept of the tonnage tax scheme.
Clarification of “valid certificate” – Section 227(4)
Sub-section (4) of Section 227 currently states that tonnage shall be taken as the tonnage of the ship or inland vessel as indicated in the certificate referred to in sub-section (9). The Finance Bill, 2026 proposes to refine this wording.
- In
Section 227(4)(a), the word “certificate” is proposed to be substituted with “valid certificate”.
This seemingly minor change is important as it links the tonnage computation directly to the specific type of certificate recognised under sub-section (9), thereby reducing ambiguity and potential disputes over which document should be relied upon for tonnage figures.
Recognition of Certificate of Registration – Section 227(9)(b)(iii)
Section 227(9)(b)(iii) presently provides that, for an inland vessel registered in India, a valid certificate means a certificate issued under the Inland Vessels Act, 2021.
Industry and stakeholders had pointed out that, under the Inland Vessels Act, 2021, a separate tonnage certificate is not typically issued.