Transfer of profits to tonnage tax reserve account

Subject to and in accordance with the requirements of this section, a tonnage tax company shall be required to credit to a reserve account (hereinafter referred to as the Tonnage Tax Reserve Account in this section) an amount equal to not less than twenty percent of the book profit inferred from the activities described in clauses of sub-section (1) of section 115V-I in each preceding year to be used in the manner specified in a sub-section.

With the caveat that a tonnage tax business may transfer an amount greater than 20% of the book profit, and that excess amount must also be used in accordance with a subsection's instructions.

Marvellous information on section 80g of income tax act.

If a corporation has book profit from running qualified ships but book loss from any other sources, making it impossible for the company to generate all or any portion of the reserves required by a subsection, the firm must build reserves as much as feasible in the prior year, and any deficit, if any, must be added to the amount of reserves that must be built in the subsequent year; this shortfall is then considered to be a component of the reserve requirement for the subsequent year.

The corporation will be deemed to have produced adequate reserves for the first indicated previous year, provided that the deficiency in reserve formation during a specific previous year is carried over to the next previous year under this sub-section. Furthermore, if the deficiency in reserve formation persists for two consecutive prior years, nothing in the first clause shall apply with respect to the next year.

It is good to know about tax exemption.

The sum credited to the Tonnage Tax Reserve Account under the aforementioned sub-section must be used by the firm before the expiration of the eight-year term immediately following the year in which it was credited:-

(a) for purchasing a new ship in order to advance the company's operations; and

(b) till the purchase of a new ship, for the objectives of running eligible ships for commercial purposes, except the dividend distribution or profits, transfer of profits beyond India, or the development of any asset outside India.

The quantity that bears the same percentage to the total approval income as the shortfall in credit to the deposits bears to the lowest reserve required to be rewarded under that sub-section shall not be taxable, regardless of what is stated in any other provision of this paragraph where the sum credited to the Tonnage Tax Reserve Account in accordance with the above sub-section is below the minimum required amount to be credited under that sub-section.

Get to know more about 80g certificate.