Tax on Shipping Business of Non-Residents: 7.5% Deemed Income (Income Tax Act 2025)

Section 316 of the Income Tax Act, 2025 taxes ships that belong to or are chartered by a non-resident and carry passengers, livestock, mail or goods shipped at a port in India. 7.5% of the amount paid or payable for that carriage is deemed to be income accruing in India to the owner or charterer. The master of the ship files a return before departure, and tax is collected before the ship gets port clearance. The text is as amended by the Finance Act, 2026.

Who does section 316 apply to?

It applies to any ship, owned by or chartered by a non-resident, that carries passengers, livestock, mail or goods shipped at a port in India (section 316(1)). The section applies "irrespective of anything in the other provisions of this Act", so it overrides the usual way of computing business income for these voyages. It is a collection mechanism for occasional visits, where the owner has no Indian books or office to assess.

How is the income calculated?

Under section 316(2), 7.5% of the amount paid or payable for the carriage is deemed income in India. It does not matter whether the amount is paid in India or outside India. The amount includes demurrage charges, handling charges and any other amount of a similar nature (section 316(2)(b)).

Demurrage is the charge payable when a ship is held at port beyond the agreed time. Handling charges are the charges for loading and similar services.

Worked example 1: cargo freight (tax year 2026-27)

Assumptions: a foreign-chartered vessel loads goods at Mumbai in January 2027. Freight payable is Rs 40,00,000, demurrage Rs 2,00,000 and handling charges Rs 1,00,000.

Step	Item	Amount (Rs)
1	Freight	40,00,000
2	Add demurrage (section 316(2)(b))	2,00,000
3	Add handling charges (section 316(2)(b))	1,00,000
4	Total amount paid or payable (40,00,000 + 2,00,000 + 1,00,000)	43,00,000
5	Deemed income at 7.5% (43,00,000 x 7.5 / 100)	3,22,500

Tax is then charged on Rs 3,22,500 at the rate for a company that has not made the arrangements referred to in section 393(1), Table Sl. No. 7 (section 316(5)(b)). That Table entry deals with dividends declared by a domestic company. The Assessing Officer applies the rate in force for that class of company; this article does not state a percentage because section 316 does not give one.

Worked example 2: a chartered vessel, two parcels

Assumptions: since the ship last called at Kandla, it has carried two parcels shipped there. Parcel A freight is Rs 7,50,000 and parcel B freight is Rs 4,50,000. Demurrage of Rs 80,000 is payable on the voyage.

Step	Item	Amount (Rs)
1	Parcel A + parcel B (7,50,000 + 4,50,000)	12,00,000
2	Add demurrage	80,000
3	Total (12,00,000 + 80,000)	12,80,000
4	Deemed income at 7.5% (12,80,000 x 7.5 / 100)	96,000

The return under section 316(3) covers the full amount paid or payable for carriage shipped at that port since the ship's last arrival there, so both parcels go into one return.

What does the master of the ship have to do?

Before the ship leaves any Indian port, the master prepares and gives the Assessing Officer a return of the full amount paid or payable for carriage shipped at that port since the ship last arrived there (section 316(3)).

If the master cannot file before departure, the requirement is treated as met if two conditions hold (section 316(4)):

• the Assessing Officer is satisfied that filing before departure is not possible and that the master has made satisfactory arrangements for another person to file the return and pay the tax; and
• the return is filed within 30 days of the ship's departure by the person authorised by the master.

How and when is the tax assessed?

On receiving the return, the Assessing Officer assesses the deemed income and determines the tax, which is payable by the master of the ship (section 316(5)). The officer may call for accounts or documents needed to determine the tax (section 316(7)). No assessment order can be made after nine months from the end of the tax year in which the return is furnished (section 316(6)).

Real-life example: Ravi is the master of a chartered vessel that loads cargo at an Indian port. Port formalities are done but the freight accounts are with the charterer's head office abroad. He cannot file before sailing, so he authorises the shipping agent to file within 30 days and shows the Assessing Officer the arrangement for payment. If the officer is satisfied, the return filed by the agent within 30 days counts as compliance.

Can the ship leave without paying the tax?

Not without clearance. Under section 316(8), port clearance is not granted until the Commissioner of Customs, or another authorised officer, is satisfied that the tax assessable under the section has been paid or that satisfactory arrangements have been made to pay it.

Can the owner choose normal assessment instead?

Yes. Under section 316(9), the owner or charterer can claim, before the end of the year following the tax year of the ship's departure from the Indian port, that tax be determined on the person's total income for the tax year under the other provisions of the Act. If so, tax paid under section 316 is treated as advance tax for that year and adjusted against the tax payable. Any difference is paid by the person or refunded (section 316(10)).

Worked example 3: opting for normal assessment (tax year 2026-27)

Assumptions (illustrative figures only): Meena runs a foreign shipping line. Her ship left an Indian port on 20 January 2027. Tax paid under section 316 was Rs 90,000. On a regular assessment of her total income, the tax comes to Rs 60,000.

Step	Item	Amount (Rs)
1	Tax paid under section 316, treated as advance tax	90,000
2	Tax on regular assessment	60,000
3	Refund due (90,000 - 60,000)	30,000

The departure falls in tax year 2026-27 (ending 31 March 2027), so the claim must be made before the end of the following year, that is before 31 March 2028. If the regular tax had been Rs 1,10,000, Meena would have paid the extra Rs 20,000.

Quick reference

Item	Rule	Provision
Deemed income	7.5% of amount paid or payable for carriage, including demurrage and handling	316(2)
Return	By the master before departure	316(3)
Late filing allowed	Within 30 days of departure, if conditions met	316(4)
Assessment time limit	9 months from end of the tax year of return	316(6)
Port clearance	Only after tax paid or arrangements made	316(8)
Normal assessment option	Claim before end of the following year	316(9), (10)

Real-life example for the time limit: a ship leaves in January 2027 and the return is filed on 18 February 2027, in tax year 2026-27. The assessment order must be made within nine months of 31 March 2027, so by 31 December 2027.

Common mistakes

• Computing the 7.5% on freight alone and leaving out demurrage and handling charges.
• Treating the section as limited to cargo. It also covers passengers, livestock and mail.
• Assuming the amount must be paid in India. Section 316(2)(a) applies whether it is paid in or out of India.
• Missing the 30-day window in section 316(4), or relying on it without the Assessing Officer's satisfaction.
• Forgetting the claim for normal assessment, which must be made before the end of the year following the departure year.

Where this is in the Act

• Section 316: shipping business of non-residents (sub-sections (1) to (10)).
• Section 393(1), Table Sl. No. 7: referred to in section 316(5)(b) for the company rate.

For comparison with how other deductions of tax at source work, see our guide to TDS on rent under the Income Tax Act 2025. If your firm advises shipping agents or foreign operators, Finexo's practice management software for CAs can track return and assessment deadlines across clients. This article is general information, not tax advice.