Union Budget 2026: Extension of Tonnage Tax Scheme to Inland Vessels

During the 2026 budget, Finance Minister Nirmala Sitharaman proposes changes in Chapter XIII-G for giving effect to the extension of the Tonnage tax scheme to Inland Vessels.

Chapter XIII-G of the Act has special rules for taxing shipping companies. Earlier, the tonnage tax benefit was mainly for seagoing ships. Through the Finance Act, 2025, this benefit has been extended to inland vessels registered under the Inland Vessels Act, 2021, to encourage inland water transport.

As per the government, certain changes are required in this Chapter to match the provisions of the Inland Vessels Act, 2021 and the related rules. These changes are required so that the tonnage tax scheme can properly apply to inland vessels. So, the Finance Minister proposed to make the following changes:

1. Section 227 deals with how tonnage income is calculated. At present, it refers to a “certificate” for determining tonnage. It is proposed to replace this term with “valid certificate” to make the provision clearer.

2. Section 227(9)(b)(iii) provides that for inland vessels registered in India, a valid certificate is issued under the Inland Vessels Act, 2021. However, under this Act, no separate tonnage certificate is issued. Instead, the “Certificate of Registration” mentions the net tonnage of the vessel. Therefore, it is proposed to replace the word “certificate” with “certificate of registration” in this provision.

3. Section 228 relates to the shipping income and exclusion from book profit. Sub-section (3)(b)(ii)(A) says that for companies operating passenger ships, the income from their on-board and on-shore activities would be included in the core activities if a tonnage company. Now, it is proposed to change this law so that inland vessels are also included under this rule.

4. Section 232 of the Act relates to certain rules for the applicability of the tonnage tax scheme. Sub-section (12) says that a company must provide minimum training requirements to trainee officers. This training must follow the rules made by the Director-General of Shipping and approved by the Central Government. Now, it is proposed to amend sub-section (12) to include training guidelines issued by the Inland Waterways Authority of India, which are also approved by the Central Government.

5. Sub-section (13) of Section 232 requires tonnage tax companies to submit a certificate issued by the Director-General of Shipping, confirming that they have met training requirements as per rules, along with the return of income under Section 263. Since inland vessels are regulated by two different authorities, i.e., the Merchant Shipping Act, 1958 and the Inland Vessels Act, 2021, it is proposed that this section will be amended to refer to the appropriate authority for inland vessels.

6. Section 232(17) explains how the average net tonnage is calculated, in consultation with the Director-General of Shipping. It is now proposed to involve the Inland Waterways Authority of India for inland vessels.

7. Section 235, which contains definitions for Chapter XII-G, is also proposed to be amended to include a definition of the “Inland Waterways Authority of India”.

These amendments will come into force from April 1, 2026 and will apply from the 2026-27 tax year and subsequent tax years.