Indian tax


  • Date: 01/03/2007

A vessel was fixed on voyage basis from one Indian port to another. During negotiations, before the owners made a firm offer on the freight rate, they asked their broker whether Indian freight tax would be the same for cabotage as it was for export voyages.The broker checked with an Indian ship agent and inferred from the conversation that the situation was the same for both: a tax rebate was available for both types of voyage. The owners factored this into their voyage calculations and made an offer to the charterers on the freight rate they would be prepared to accept, which the charterers accepted.

Unfortunately the brokers had misunderstood what the local ship agent had said. The Indian Income Tax Act (s.44(b)) provides that 7.5% of the total freight amount is deemed to be profit and taxable at 40%. There is also a surcharge and the overall tax rate on the total freight was equivalent to 3.135%. This tax is only recoverable for voyages loading in India and discharging elsewhere; there is no rebate on cabotage.

By not factoring the tax into their voyage calculations during negotiations, the owners had inadvertently put themselves at an advantage over other owners in the market. This enabled them to secure the business, for which they made a profit without receiving the rebate. In addition, the brokers had made it clear to the owners that the information on the tax had been provided by someone else and the brokers were not holding it out as a matter of fact. In view of these two factors the owners agreed to accept half the tax amount from the broker.

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