Tonnage Tax Scheme: Boosting India’s Water Transport Sector
- vidyarthee2021
- Feb 5
- 2 min read
The Union Budget 2025-26 has expanded the Tonnage Tax Scheme, making it applicable not just to seagoing ships but also to inland vessels registered under the Indian Vessels Act, 2021. This move aims to enhance the water transport sector by encouraging investment in inland waterways.
What is the Tonnage Tax Scheme?
Overview
The Tonnage Tax Scheme is a tax regime designed to provide fiscal incentives to shipping companies. Instead of traditional corporate tax rates, companies pay taxes based on the net tonnage of their fleet, making operations more cost-effective and competitive.
Evolution of the Scheme
Introduced in 2004 under the Indian Finance Act, 2004 to benefit seagoing ships.
Expanded in 2025-26 to cover inland vessels under the Indian Vessels Act, 2021.
Objective
Promote the growth of shipping and water transport.
Increase cargo movement via inland waterways.
Encourage investment in shipping infrastructure.
Governing Body
Administered by the Ministry of Ports, Shipping, and Waterways.
Indian Vessels Act, 2021: A Game-Changer
The expansion of the Tonnage Tax Scheme aligns with the objectives of the Indian Vessels Act, 2021, which aims to:
Develop a safe and efficient inland water transport system.
Ensure legal uniformity across different states.
Streamline vessel registration and operational procedures.
By integrating inland vessels into the tax scheme, the government seeks to revitalize India’s water transport sector, providing a viable alternative to road and rail logistics.
Significance of the Expansion
Boost to Inland Waterways
Encourages private players to invest in inland water transport.
Reduces dependence on congested road and rail networks.
Economic and Environmental Benefits
Water transport is cost-effective and fuel-efficient.
Lowers carbon emissions, contributing to sustainable transport.
Strengthening the Blue Economy
Expands maritime trade and connectivity.
Supports the vision of Maritime India Vision 2030.
Enhancing Logistics and Connectivity
Increases cargo movement via National Waterways.
Reduces logistics costs, improving trade competitiveness.
UPSC Relevance
GS-2 (Governance & Policies): Government initiatives to boost transport and infrastructure.
GS-3 (Economy & Environment): Blue economy, sustainable transport, and logistics development.
Essay Topics: "Waterways as the Future of Sustainable Transport in India."
UPSC Practice Question
With reference to the Tonnage Tax Scheme, consider the following statements:
It was first introduced under the Indian Vessels Act, 2021.
The Union Budget 2025-26 has expanded its coverage to include inland vessels.
The scheme allows shipping companies to pay taxes based on the tonnage of their fleet instead of corporate tax rates.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2, and 3
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