How Indian Companies Abuse the Tonnage Tax System — And What the New Anti-Abuse Rules Mean

If you’ve ever peeked into the financials of a shipping group, you know it’s not always smooth sailing. In fact, India’s #tonnagetax system—meant to support the maritime sector—has quietly become one of the most misused tax regimes.

Why?
Because under the tonnage tax regime, companies can reduce their effective tax rate to as low as 1–3% compared to the usual 30–40% corporate tax on non-shipping income. That massive gap creates the perfect playground for creative accounting… and some outright abuse.

Today, let’s break down how companies manipulate the tonnage tax system, what tricks they use behind the scenes, and how India’s new anti-abuse rules might finally plug the leaks.
(Explained in simple language — like we’re chatting over chai 

1.  Shifting Non-Shipping Activities Into Shipping Entities

This is the oldest trick in the book.

Large groups often have multiple entities—shipping, logistics, trading, technical services, consulting, etc.
To enjoy the sweet 1–3% tonnage tax rate, companies quietly move non-shipping activities into their shipping subsidiaries.

What does that look like in real life?

Chartering income disguised as shipping income
Some companies label regular chartering revenue as “core shipping operations” even when it doesn’t meet tonnage criteria.

Logistics payments routed through shipping subsidiaries
Payments that have nothing to do with vessels or voyages are funneled through the shipping entity to make them “look” shipping-related.

Technical fees reclassified as maritime operations
Customs commissions, technical management fees, and consultancy costs are renamed under fancy “operational heads” to fall under the #maritime umbrella.

All of this just so the income enjoys the low #taxplanning advantage of the tonnage r

2.  Over-Inflating Expenses in Non-Tonnage Activities

Now let’s talk about the opposite manipulation.

Tonnage tax income is taxed super low.
But non-tonnage income—like bunker trading, interest income, depreciation, management fees—gets taxed at regular 30–40%.

So what do some companies do?

They inflate expenses in non-tonnage activities so the taxable profit becomes tiny, and the real income quietly flows to the tonnage entity.

Examples include:

• Artificially high management fees

• Padded bunker purchase costs

• Excessive interest and depreciation

• Layered logistics and handling expenses

This trick reduces high-tax income and shifts the economic benefit to low-tax subsidiaries.
Classic profit shifting. Classic misuse.

3.  Creating 20–30+ Group Entities for Round-Tripping

This is where things get messy.

Some shipping groups in India have 30+ shell-like entities — all within the same corporate family.

Why so many companies?

 To move profits between themselves through inter-company agreements
 To reinvoice income at artificial rates
 To shift profits into the one subsidiary eligible for tonnage tax

This becomes a giant maze of:

• Related-party chartering

• Circular payments

• Dummy JVs

• Paper-only technical service agreements

• Management fee round-tripping

All designed with one goal:
Move the money where the tax rate is lowest.

This isn’t tax planning.
It’s tax gymnastics. 

 A tangle of int

erco

4. The Bareboat Chartering Loophole

Bareboat chartering—where you lease a vessel without crew or supplies—was another hot favorite for abuse.

Companies often:

• Held vessels in one entity

• Leased them to another related shipping entity

• Set artificial charter rates

• Shifted profit from a 30% tax entity to a 1–3% tonnage tax entity

Bareboat chartering became the “perfect match” for profit shifting because it looked like a legitimate maritime transaction, but functioned as an internal tax-shifting pipeline.

5.  India’s New Anti-Abuse Rules: Will They Work?

Seeing all this manipulation, the Indian government finally stepped in with anti-abuse provisions for the tonnage tax regime.

The new rules focus on:

• Substance-over-form evaluation

• Scrutiny of related-party charter rates

• Monitoring group-wide profit shifting patterns

• Preventing artificial business fragmentation

• Evaluating genuine commercial operations instead of paper-based activities

Will it work?
Early signs show stronger audits and higher scrutiny from authorities, but loopholes exist as long as large groups maintain complex webs of entities.

If you’re in shipping, logistics, bunkering, or vessel management, these rules will affect you.
Ping us if you want deeper insights into how companies are still navigating (or trying to bypass) these rules.

Related Blogs You Should Read

• How Indian NRIs Can Reduce Global Tax Using DTAs

• Tax Planning Tips for Salaried Individuals (₹20L–₹50L)

• How to Choose Between LLP vs Pvt Ltd for Your New Business

• Complete Guide to International Tax Structures for Indian Businesses

 Shunyatax Global’s Closing Note

Financial clarity starts with informed decisions.
At Shunyatax Global, we help individuals and businesses stay compliant with shipping taxation, #GSTfiling, #taxplanning, #NRIservices, and regulatory rules across India and Dubai.

We also support companies with:
auditing services in India
bookkeeping services in India
business setup in Dubai

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