In this Union Budget 2025, the Hon'ble Finance Minister has unveiled  a robust set of measures aimed at strengthening India’s maritime sector, and especially the shipping industry. The announcements span key areas such as domestic shipbuilding, shipbreaking, inland waterways, and tax incentives including for foreign companies engaging with Indian International Financial Services Centres (IFSC) units engaged in ship leasing. These initiatives reflect the government’s ongoing commitment to fostering the growth of India’s shipping industry through targeted infrastructure support, financial assistance, and tax relief.

These budgetary initiatives for India’s marine sector are focused on unlocking its vast potential and maximizing the benefits from the existing resources through upgrades, modernisation, and automation.

Building on Past Reforms: A Continued Focus on Shipping

The Union Budget 2025 is not a fresh start for the shipping sector but rather an affirmation of the government’s commitment to continuing and expanding upon previous reforms. This includes the extension of key initiatives from prior budgets aimed at enhancing India’s maritime infrastructure and increasing its global competitiveness which involves:

1. Incentivizing Ship Leasing through IFSC:

As part of ongoing reforms, the government continues to incentivize ship leasing through units set up in IFSCs. These IFSC units engaged in ship leasing benefit from:  

- 100% profit-linked deduction for 10 consecutive assessment years within a 15-year period, offering a significant tax holiday.  

- favorable Minimum Alternate Tax (MAT) rate of 9%on book profits, making it more attractive for businesses.  

- 100% profit linked deduction on capital gains arising on transfer of ship / ocean vessel leased by a GIFT IFSC unit.

In addition to the above, interest and royalty income of non-resident received from IFSC units engaged in ship leasing are also tax exempt.

Continuing with above incentives to ship leasing through IFSC, budget proposals additionally provide for:

(i) Exemption from capital gains taxation to non-residents and units of IFSC:

Capital gains generated from the transfer of shares in domestic companies (step down SPV) involved in ship leasing, which are also units of the IFSC, will now be tax-exempt for non-residents and IFSC units, engaged primarily in ship leasing. This provides a significant advantage for global investors and enhances the attractiveness of the IFSC as a hub for ship leasing activities.

(ii) Exemption from dividend taxation to units of IFSC

Any dividend income from the above step down SPV shall also not be exempt in the hands of the holding company, being the IFSC unit.

By building on the past incentives, the government ensures that India remains a competitive destination for international ship leasing, attracting global investors and contributing to the growth of maritime finance.

2. Extension of BCD Exemption for Shipbuilding and Shipbreaking

To support the long-term growth of India’s shipbuilding industries, the budget extends the Basic Customs Duty (BCD) exemption on raw materials, components, and parts required for shipbuilding for another 10 years.

Similarly, exemption of BCD to ship breaking has been extended to make it more competitive another 10 years.

This extension will make Indian shipyards and shipbreakers more competitive on the global stage, facilitating growth and modernization in these critical sectors.

3. Presumptive Tax Regime for Non-Resident Cruise Operators

Another continuation from earlier budgets is the presumptive tax regime for non-resident cruise operators. This allows them to deem 25% of receipts from cruise operations as business income, simplifying the tax structure for international cruise companies.  

This ongoing initiative continues to make India an attractive market for foreign cruise operators, boosting tourism and job creation within the domestic cruise industry.

However, similar presumptive tax regime for domestic cruise operators have not been announced yet which to some extent disincentivize domestic cruise operators.

New Policy Initiatives and Tax Incentives in Budget 2025

The Union Budget 2025 introduces several new and impactful measures aimed at revitalizing the shipbuilding and shipbreaking sectors, along with fostering innovation in inland water transport.

Strategic Policy Measures for Investment and Growth

1. Maritime Development Fund (MDF)

A key highlight of this year's budget is the creation of the Maritime Development Fund (MDF), with an initial corpus of INR 25,000 crore, aimed at boosting the maritime sector through equity and debt financing. The government’s contribution will be 49%, while the rest will be raised from public sector enterprises, financial institutions, and the private sector.  

The fund will help finance ship acquisitions, reducing India’s reliance on foreign vessels and promoting domestic shipbuilding. By 2030, MDF aims to generate up to ₹1.5 lakh crore in investments, boosting India’s strategic maritime capabilities.

2. Shipbuilding Clusters and Infrastructure Support 

The Union Budget also proposes a ₹6,100 crore investment in the development of shipbuilding clusters, including infrastructure upgrades, technological support, and skill development. The initiative includes building essential infrastructure like roads, utilities, and sewage systems, and providing direct capital support for infrastructure creation.  

This will enhance the efficiency of existing shipyards and enable the creation of new hubs for shipbuilding, positioning India as a global leader in maritime innovation and production.

3. Shipbuilding Financial Assistance Policy (SBFAP) 2.0 

The government has extended the Shipbuilding Financial Assistance Policy (SBFAP) 2.0, which provides financial subsidies to Indian shipyards. The scheme, with an outlay of ₹18,090 crore, helps shipyards offset operational disadvantages, enabling them to secure more orders and remain competitive internationally.  

This extension will ensure continued growth in India’s domestic shipbuilding industry, making Indian shipyards more capable of meeting global demand.

4. Shipbreaking Credit Note Scheme

Another initiative introduced in the budget is the Shipbreaking Credit Note Scheme, which offers a credit note of 40% of the scrap value of a vessel. This credit can be used towards the purchase of new Made-in-India ships.

The scheme incentivizes sustainable practices in the shipping industry by encouraging ship recycling and boosting demand for domestically manufactured ships.

5. Inclusion of Large Ships in Infrastructure Harmonised Master List (HML) 

In another welcome move for shipping industry, the budget provides for the inclusion of Large Ships in the Infrastructure Harmonised Master List (HML), making them eligible for long-term financing and tax incentives.  

This will facilitate the modernization of India’s fleet, attract private investment, and ensure easier access to financing for large-scale shipping operations.

Tax Measures

Extension of Tonnage Taxation Scheme to Inland Vessels 

In a significant move, the budget extends the tonnage taxation scheme, which was previously limited to sea-going vessels, to now include inland vessels registered under the Inland Vessels Act, 2021.  

This expansion would enhance cargo movement as the vessels will avail tax benefit from its capacity, instead of profit. This will further incentivise shipping companies to invest in inland waterways vessels as it becomes financially more viable.

Conclusion: Setting Sail for a Stronger Maritime Future

The Union Budget 2025 is a defining moment for India's shipping sector. The government's continued focus on supporting shipbuilding, shipbreaking, and maritime infrastructure is critical to ensuring India’s long-term competitiveness in the global shipping market. By expanding past reforms and introducing strategic new policies, India is poised to not only navigate current challenges but also emerge as a global maritime leader. With these forward-looking initiatives, India’s maritime future looks poised for growth, innovation, and sustainable success.