India issues a circular on net tonnage factor for FY 2023-24

The Directorate General of Shipping, India has issued a circular detailing the method for calculating the net tonnage factor for the financial year 2023-24 for tonnage tax companies that use space or slot arrangements.

This circular was published on 20 June 2024.

Purpose and Context:

• The circular is intended to guide shipping companies that opt for the Tonnage Tax Scheme under Chapter XII-G, Section 115 VU of the Income Tax Act, 1961.
• This scheme includes provisions for calculating the Net Tonnage Factor, which is crucial for determining the training requirements and tax obligations of such companies.

Detailed Guidelines for Training:

• Issued originally by the Government of India, Ministry of Shipping via a Gazette Notification dated 12th December 2007.
• According to Clause 1, Explanation C (2) of the Notification:
  • In the case of space or slot charters, the number of mandays (a day of work performed by one person) must be calculated using a specific formula involving the Net Tonnage of the charters and the Net Tonnage Factor.

Calculation Formula:

• Net Tonnage of Slot/Space Charters:
  • This is calculated as per the official notification issued in the Gazette, referenced under Section 115 VG of the Income Tax Act, 1961.
  • A CBDT (Central Board of Direct Taxes) notification dated 29th March 2005 provides the methodology for this calculation.
• Net Tonnage Factor:
  • Defined as the aggregate Net Tonnage of all qualifying ships registered under the Merchant Shipping Act, 1958, at the end of the preceding financial year.
  • It is calculated by dividing this total Net Tonnage by the total number of qualifying ships at the end of that financial year.
  • The Directorate General of Shipping must notify this factor within 60 days from the beginning of each financial year.

Net Tonnage Factor for FY 2023-24 (AY 2024-25):

• For the current financial year, the Net Tonnage Factor has been determined to be 9244.
• This factor will be used in conjunction with the Net Tonnage of slot/space charters (as per the CBDT notification) to work out the minimum training requirement for such arrangements during the financial year 2023-24.

Implementation:

• Shipping companies must use the Net Tonnage Factor of 9244 in their calculations to determine their training obligations and other related requirements under the Tonnage Tax Scheme for FY 2023-24.
• The calculation involves multiplying the derived Net Tonnage figure by the number of days the ships are operated by the company during the financial year, including any shortfall from the previous financial year.

For more information, please see the document below (available only to subscribers):

Calculation of Net Tonnage Factor for Financial Year 2023-24 (AY 2024-25) to Be Used by Tonnage Tax Companies Having Space/Slot Arrangement