Presumptive Scheme for Shipping Business under Section 61

Introduction

A non-resident engaged in the operation of ships can be assessed on presumptive basis under Section 61 or Section 316. In both these schemes, the income is computed on presumptive basis at the rate of 7.5% of the sum received or receivable by the shipping entity from carriage of goods or passengers.

1. Presumptive Scheme under Section 61

1.1. What is presumptive taxation scheme?

Income-tax Act allows non-residents shipping entities to calculate and pay tax on presumptive basis. This scheme has been introduced to reduce the burden of compliances on such entities. Thus, if an entity opts for presumptive tax scheme, it can pay tax on presumption basis without maintaining the books of accounts.

1.2. Who can opt for the Scheme?

A non-resident person or a foreign company engaged in the business of operation of ships other than cruise ships can opt for this scheme.

1.3. How much is presumptive income under the scheme?

The taxable income from business of operation of ships shall be 7.5% of aggregate of the following amounts:

(a) Amount paid (or payable) on account of the carriage of the passengers, livestock, mail or goods shipped at any port in India. The amount may be paid (or payable) in India or outside India. It may be paid (or payable) directly to the assessee or to any other person on his behalf;

(b) The amount received or deemed to be received in India on account of carriage of passengers, livestock, mail or goods shipped at any port outside India. The amount may be received by the assessee or by any other person on his behalf.

(c) The amount paid or payable or the amount received or deemed to be received by way of demurrage charges or handling charges or any other amount of similar nature on account of carriage of passengers, livestock, mail or goods shipped at any port in India or outside India.

1.4. Provision overrides Section 26 to 54

Section 61 overrides the provisions of sections 26 to 54. Thus, income of a non-resident from shipping business shall be computed on presumptive basis and all other additions or deductions allowable under Section 26 to 54 shall be deemed to have been allowed. However, all other provisions (other than Section 26 to 54), i.e., provisions for calculation of capital gains, set off or carry forward of losses, etc. will continue to be applicable in the case of a non-resident deriving profits from shipping business.

1.5. Overriding effect of DTAAs

Where non-resident entity, deriving income from shipping business, is resident of a foreign country with which India has entered into Double Taxation Avoidance Agreements (DTAAs) and such DTAA provides for taxation of shipping profits only in the country of which such entity is a resident, no tax is payable by such ships at Indian ports. Under such circumstances, a "No Objection Certificate" is to be obtained by the master of the ship from the concerned income-tax authority

2. Presumptive Scheme under Section 316

The provision of Section 316 applies for levy and recovery of tax in the case of any ship, belonging to or chartered by a non-resident, which carries passengers, livestock, mail or goods shipped at a port in India. The income of such non-resident from shipping operation shall be computed on presumptive basis.

2.1. How much is presumptive income?

7.5% of the amount paid or payable, for carriage of passengers, livestock, mail or goods shipped at a port in India, to the owner or the charterer or to any person on his behalf, shall be deemed to be income accruing in India. The amount may be paid in India or outside India.

2.2. Filing of return

The master of the ship is required to prepare and furnish to the Assessing Officer a return of the full amount paid or payable, including demurrage, handling and any other charges of similar nature, on account of the carriage of all passengers, livestock, mail or goods shipped at the port since the last arrival of the ship thereat. This return is to be filed before departure of ship from any port in India.

Such return can be filed by a person authorised by the master of ship and it shall be deemed to be filed by the master if following conditions are fulfilled:

(a) Assessing Officer is satisfied that it is not possible for the master of the ship to file such return before the departure of the ship from the port in India; and  

(b) The master of the ship has made satisfactory arrangements for filing the return and payment of tax by any other person on his behalf; and

(c) Such return is furnished within 30 days of the departure of the ship

2.3. Computation of Income

On receipt of return, the Assessing Officer shall calculate the income on presumptive basis as referred to above and determine the tax on such income at the rates applicable to the total income of a foreign company. Such sum is to be paid by the master of the ship or by any person authorised by him. For the purpose of computing the income and determining of tax, the Assessing Officer may call for such accounts or documents as he may require.

2.4. Time limit to complete assessment

No order assessing the income and determining the sum of tax payable thereon can be made after the expiry of 9 months from the end of the tax year in which the return is furnished.

2.5. Port Clearance Certificate

For issuance of port clearance certificate, collector of custom or any other officer duly authorised by him shall be satisfied that the assessed tax has been paid or satisfactory arrangement has been made for payment of same.

2.6. Option to opt for Regular Assessment

If owner or charterer of the ship finds that he has been assessed on a higher income under the provisions of Section 316, he may claim that a regular assessment be made on his total income of the relevant tax year and tax be recovered accordingly. Such option may be exercised before the end of the assessment year relevant to the tax year in which the date of the departure of the ship from Indian port falls.

In that situation, the taxes so paid under Section 316 shall be treated as tax paid in advance for that assessment year. If tax liability determined in regular assessment exceeds the tax paid, the difference shall be payable by the assessee. If tax liability as determined is less than the tax paid under Section 316, the excess amount shall be refunded to the assessee. Where a non-resident gets himself assessed under regular assessment, he is liable to pay interest under Section 424 & Section 425 and also entitled to receive interest under Section 437,as the case may be

References

Circular: No. 732, dated 20-12-1995

Circular No. 9 dated 9-7-2001

This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.