In a significant move to bolster India’s maritime sector, the Union Budget 2025-26 has extended the Tonnage Tax Scheme (TTS) to include inland vessels registered under the Inland Vessels Act, 2021. Previously applicable only to sea-going ships, this expansion aims to promote inland water transport by offering tax benefits based on the cargo-carrying capacity of vessels rather than their profits.

What is the Tonnage Tax Scheme?

The Tonnage Tax Scheme allows qualifying shipping companies to compute their income based on the net tonnage of their vessels, providing a simplified and often lower tax liability compared to traditional corporate taxation. This system offers predictability and encourages investment in the shipping industry.

Key Highlights from Budget 2025-26

• Extension to Inland Vessels: The TTS now encompasses inland vessels, incentivizing companies to invest in inland water transport infrastructure.

• Infrastructure Status for Large Ships: Large ships above a specified size are now included in the Infrastructure Harmonised Master List, making them eligible for long-term financing and tax incentives.

• Maritime Development Fund: A ₹2.5 lakh crore ($3 billion) fund has been established to support shipbuilding and repair industries, with the government contributing 49% and the remainder sourced from ports and the private sector.

• Ship Recycling Credit Note Scheme: Fleet owners recycling ships in Indian yards will receive credit notes equivalent to 40% of the scrap value, redeemable against the cost of constructing new vessels in Indian shipyards.

Implications for the Maritime Industry

The extension of the TTS to inland vessels is expected to:

• Enhance Investment: Lower tax liabilities make inland water transport more financially attractive, encouraging private investment.

• Promote Sustainable Transport: Inland water transport is more fuel-efficient and environmentally friendly compared to road and rail, aligning with sustainable development goals.

• Boost Employment: The maritime initiatives are projected to generate significant employment opportunities in shipbuilding, repair, and related sectors.

Conclusion

The Union Budget 2025-26 marks a transformative phase for India’s maritime sector. By extending the Tonnage Tax Scheme to inland vessels and introducing supportive measures, the government aims to revitalize inland water transport, reduce logistics costs, and position India as a global maritime hub.