How Shipping Companies Abuse India’s Tonnage Tax System (TTS)

India’s shipping sector operates under a special tax regime known as the Tonnage Tax System (TTS) — a scheme originally created to help Indian vessels compete with global shipping giants. But over the years, several companies have found creative ways to twist this benefit to reduce their tax outgo drastically.
While TTS was meant to support a struggling maritime ecosystem, it has quietly become a playground for tax arbitrage, corporate structuring tricks, and disguised revenues.

In this blog, we break down exactly how companies abuse the TTS regime, real-world patterns we’ve observed in balance sheets, and why the government finally introduced an Anti-Abuse Rule.
If you work in shipping, logistics, international taxation, or global finance, this will open your eyes to what’s really happening beneath the surface.

1. What is Tonnage Tax System (TTS)? A Quick Refresher

Under normal corporate taxes, a shipping company would pay 30% corporate tax (plus surcharge & cess) on its actual profit.
But under the Tonnage Tax System, companies pay tax based on:

• The size of the ship

• The number of days it operates

• Per-ton fixed income slabs

This means the effective tax rate drops to 1–3%, a massive reduction compared to regular taxes.
The intention was simple — stop ships from flagging in tax havens and attract more vessels under Indian flag.

But companies quickly discovered that if they could show more activities as “shipping income,” they could reduce tax across multiple group entities.

2. Abuse #1: Shifting Non-Shipping Activities Into Shipping Subsidiaries

This is the most common manipulation we see while doing #auditingservices in India and global vessel reviews.

How companies do it:

1. They incorporate multiple group entities.

2. They gradually shift non-core functions into the shipping entity.

3. They classify these functions as “maritime operations,” allowing them to fall under TTS.

Real balance-sheet tricks we found:

• Chartering income shown as core shipping income

• Logistics payments routed through shipping subsidiaries

• Customs-related commissions renamed as “technical expenses”

• Technical & management fees booked as maritime income

By doing this, companies move high-tax activities into a low-tax TTS box, bringing their effective tax down drastically.
For companies operating international fleets, this becomes a huge profit sheltering tool.

3. Abuse #2: Over-Inflating Expenses in Non-Tonnage Activities

Even under TTS, not all income qualifies for concessional tax.
Non-shipping activities — like bunkering, interest income, depreciation, finance charges etc. — are still taxed normally.

So what do some companies do?

They inflate expenses intentionally.

Common patterns include:

• Overstating bunker costs

• Inflating management expenses

• Spiking depreciation values

• Recording artificial interest charges

• Allocating group salaries disproportionately

This slowly reduces taxable income on the non-tonnage side to nearly zero, ensuring only TTS-taxed income remains visible.

Companies love TTS because they pay tax only on calculated tonnage. But they love expense inflation even more because it wipes out whatever little remains outside TTS.

4. Abuse #3: Complex Group Structures With Dozens of Subsidiaries

One company we analysed had 35+ group entities registered in India, all interlinked through:

• Fake JVs

• Non-existent shipping operations

• Circular agreements

• Related-party chartering

• Reinvoicing arrangements

Why create so many companies?

To move profits silently until it lands in the entity covered under TTS.

Real tricks used:

• Chartering ships to related parties at artificially low or high rates

• Issuing invoices between group entities to shift income

• Creating multiple “maritime service companies” without real operations

• Using management fee “round-tripping” to move money without tax

If a cargo leaves Mumbai port and touches three related entities before being billed to the customer, you can guess what’s happening — profit is travelling to the TTS entity while losses stay behind.

5. Abuse #4: Bareboat Chartering (The Most Misused Model)

Bareboat chartering is simple —
You lease a ship without crew, stores, fuel or operation.

Many companies use this to:

• Avoid operational disclosures

• Shift rental income to TTS entities

• Hide capital expenditure

• Reduce tax by classifying leasing as “shipping income”

Bareboat chartering is legal.
Misclassification is not.

This is why the government finally stepped in.

6. Anti-Abuse Rules for Tonnage Tax: Will It Work?

The Indian government has now introduced the Anti-Abuse Tonnage Tax Rules, forcing companies to:

• Show substance behind group entities

• Prove real maritime operations

• Avoid round-tripping payments

• Justify related-party pricing

• Maintain shipping-only activities in TTS entities

• Avoid shifting purely financial income into maritime revenue

Will this actually work?

In theory, yes.
In practice, companies will still look for gaps… and there are many.

If you are in shipping, logistics, customs broking, or vessel financing, you already know how creative companies can get.

7. If You Are in Shipping or Vessel Operations — Talk to Us

We guide global shipping firms with:

• bookkeeping services in India

• Compliance with India’s new Anti-Abuse TTS laws

• Group restructuring

• Vessel accounting

• International tax planning

• business setup in Dubai for global fleet operations

If you want your maritime structures to be compliant (and safe), message us.

Shunyatax Global says financial clarity starts with informed decisions.

We help vessel owners, shipping companies, and global enterprises navigate tax planning, GST filing, NRI services, and international investment planning with absolute precision.

Start your journey with us today:
📞 Book a Consultation: Shunyatax Global: 1-1 Confidential Advisory
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