Knowledge Marine Shifts to Tonnage Tax Scheme for 10 Years
Filing Summary
Knowledge Marine & Engineering Works Ltd (KMEW) has received approval from the Joint Commissioner of Income Tax, Mumbai, to adopt the Tonnage Tax Scheme under section 115VP (3) of the Income Tax Act. This approval is effective for 10 years starting from Assessment Year 2026-27. The scheme allows tax calculation based on vessel tonnage rather than profits, potentially reducing tax liabilities. This move aligns with the Indian government’s extension of the Tonnage Tax Regime to inland vessels, effective April 1, 2026, to enhance investment in inland water transportation.
Knowledge Marine & Engineering Works Ltd (KMEW) has announced the receipt of approval from the Joint Commissioner of Income Tax, Mumbai, to transition from corporate tax to the Tonnage Tax Scheme. This approval, granted under section 115VP (3) of the Income Tax Act, will be effective for a period of 10 years, commencing from the Assessment Year 2026-27. The Tonnage Tax Scheme allows shipping companies to calculate tax based on the net tonnage of vessels rather than traditional profit-based corporate taxation.
The Tonnage Tax Scheme provides a simplified taxation method, offering predictable and potentially lower tax obligations. The tax is calculated using a fixed rate for each tonnage band, with larger vessels taxed at higher rates. This tiered system supports smaller fleet operations by keeping costs lower for smaller vessels. The tax is charged on the basis of deemed income rather than actual profits, ensuring stable tax obligations independent of market fluctuations.
Under the Tonnage Tax Scheme, companies must comply with specific conditions. Vessels must be registered under the Inland Vessels Act, 2021, and have a gross tonnage of at least 100 tons. Companies are required to transfer at least 20% of their book profits from tonnage tax activities to a Tonnage Tax Reserve Account, which must be used for acquiring new ships or inland vessels within eight years. The scheme must be opted for a period of 10 years, with compliance to all requirements.
The implementation of the Tonnage Tax Scheme aligns with the Indian government’s policy shift announced in the Union Budget 2025. The government extended the Tonnage Tax Regime to inland vessels to boost India’s inland water transportation industry. This amendment, effective from April 1, 2026, aims to attract investment into the capital-intensive inland transportation sector, which currently faces a shortage of vessels. Inland vessels will be treated similarly to seagoing ships, with relevant sections of the Income-tax Act amended to include inland vessels.
The approval for KMEW to adopt the Tonnage Tax Scheme is expected to reduce its tax liability, providing enhanced financial flexibility. This move is part of a broader strategy to streamline cost structures and improve competitiveness in bidding for contracts. The scheme’s predictable cost structure allows KMEW to reinvest in fleet expansion and operational growth, aligning with the rising demand in inland and coastal shipping.
Knowledge Marine & Engineering Works Ltd was incorporated in 2015 and is engaged in owning and operating marine crafts, dredging, and providing repair and maintenance services for marine infrastructure. The company offers marine engineering solutions, including dredging at various ports, repair and refit services for naval and merchant ships, and technical solutions for vessel maintenance and operations. Over the years, KMEW has established itself in the small marine craft business segment and dredging services in India, evolving from a small ship-repair unit to a ship-owning company.