Income Tax Rules for Merchant Navy Officers: Seafarers are, among other things, persons employed by a shipowner to do ship service on board a ship at sea, which means the work performed by persons taking part in the ship’s operation and maintenance well as the provisioning of those on board. Furthermore, seafarers can perform repair and maintenance work on ships, special ship personnel who have been engaged to work at sea onboard a ship, and cleaning and catering personnel.
However, the persons are subject to minimum protection, which entitles the persons to rest periods and care. In some instances, the right to return with maintenance, the right to resignation and the right to compensation for the property. In some cases, they have required health certificates and basic training.
Seafarers have unique responsibilities towards an ocean-going vessel’s successful operation. Specific categories of persons on ships with land-based employment are not considered as seafarers when they do not perform work as described above. The following persons are, for example, not categorized as seafarers: offshore specialists, journalists, researchers, co-operating shipping companies, co-operating artisans and service technicians.
A familiar deck crew for a ship includes Captain / Master, Chief Officer/ Chief mate, Second officer/ Second mate, Able seaman, Ordinary seaman, Deck cadets etc. A standard engine crew will include Chief Engineer, 2nd Engineer, 3rd Engineer, 4th Engineer (optional), Engine Cadet, Fitter, Motorman, Oiler etc. Other than this, saloon staff will comprise Chief Cook and General Stewart. Still, the number and rank of crew members serving on a ship will vary according to the size of the vessel, trade area of the ship, Minimum Safe Manning certificate, administration etc.
- How Do Seafarers Earn?
- Income Tax on Seafarers up to the Financial year 2019-20
- Meaning of Non-Resident Seafarer
- Calculation of Period Outside India
- Important Circular Issued by CBDT for Non-Resident Seafarers
- New Deemed Resident Provision from the Financial Year 2019-2020
- FAQ’s on Income Tax Rules for Merchant Navy Officers
How Do Seafarers Earn?
There are various companies recruiting seafarers. Seafarers get their remunerations from these recruited companies.
Income Tax on Seafarers up to the Financial year 2019-20
The residential status of the seafarer determines the taxability of the salary received by the person.
Resident Seafarer: The remuneration of a resident seafarer is taxable following the laws of the Income-tax department. There is no special dispensation available in such cases.
Non- Resident Seafarer: The salary of a non-resident seafarer cannot be included in the total taxable income of the seafarer.
Meaning of Non-Resident Seafarer
A person living outside India for 184 days or more during the financial year (185 days or more in case of a leap year) for employment in marine services is known as a non-resident seafarer. Otherwise, he will be treated as a resident seafarer.
Calculation of Period Outside India
Basic Rule Applicable for Voyages Start and End Outside India: Getting stamping dates in the passport is the primary requisite for calculating the period of stay outside India. Usually, passport dates are used when you join and sign off from ship outside India. However, dates of the CDC are conclusive evidence at the time of scrutiny that you are outside India for employment.
Rule Applicable for Voyages Start or End inside India: As a person joins or signs off from India, then the CDC dates shall be used to calculate the period outside India.
- Sum of all the period (which satisfies the above conditions) should be used when there are multiple voyages in a single financial year. For example, if there are two voyages for 100 days and 90 days during the financial year 2019-20, then the period outside India will be counted as 190 days.
- The duration of the voyage should be calculated considering the financial year. For example, if a journey started on 01 December 2019 and end on 01 May 2020, then the period outside Indian will be from 01 December 2019 to 31 March 2020 for the FY 2019-20 & from 01 April 2020 to 01 May 2020 for the FY 2020-21.
- The stamping dates such as the starting and ending dates will be considered as dates outside India. For example, if the starting stamp date 01 April 2020 and the ending stamp date is 30 April 2020, then the period outside India shall be 30 days. Various case laws specifically suggest that the date of departure will be considered outside India. However, the arrival date is also considered outside India in some of the decision of ITAT or calculation is required to be done on an hourly basis. So, one must have clear 185 days or more in CDC.
- If a ship spent time in the waters of the Indian territory, it would be counted as a period outside Indian if it is part of the eligible voyage.
Other Related Things
- If the status of a person is a non-resident for one of the sources, he will be treated as a non-resident for all the sources of income.
- Interest on NRE saving bank account is excluded from Tax for all the individual.
COVID 19 Updates – A viral video cutting in Merchant Navy groups shows that the 184 days condition has been relaxed for the FY 2019-20 due to Coronavirus, which is not correct. The requirement for 184 days is relaxed for the Companies in India, which must have an Indian Director as per the Companies Act 2013, not in the Income Tax Act, 1961.
Important Circular Issued by CBDT for Non-Resident Seafarers
According to Circular No. 13/2017 issued by the Central Board of Direct Taxes(CBDT) salary of a non-resident seafarer for services provided by them outside India on a foreign ship shall not be included in their total earned salary because the said salary has been credited in NRE account as maintained with an Indian bank by the seafarer.
This circular clarifies explicitly if the below conditions are met, then the salary received will not be included in the total income of the individual
- Non-Resident seafarer
- Service rendered outside India
- Foreign Ship
- Credited to NRE Bank account
However, it does not mean if a person has received remuneration from an Indian flagship, then it is taxable, as the circular as mentioned above is silent in this case. The above circular is just a clarification issued by CBDT for a specific condition.
New Deemed Resident Provision from the Financial Year 2019-2020
A new Section 6(1A) has been included by Financial Act 2020, which applies from the financial year 2020-21 (01 April 2020 to 31 March 2021). According to this new section, an individual, being a citizen of India, having a total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that last year, if he might not pay Tax in any other country due to his domicile or place of residence.
Simultaneously, another amendment has been inserted in Section 6(6) to consider the individual covered under the above section 6(1) as a resident but not generally resident.
It is suggested that all the non-resident sea fearers are considered resident Indians, and their incomes are liable to Tax because they are not paying Tax to our countries.
For clarification purposes, the relevance of this new section 6(1A), CBDT has issued a clarification via press release on 02 February 2020, including an anti-abuse provision to cover those Indian citizens who shift their stay in low or no tax jurisdiction to avoid payment of Tax in India. The new requirement is not intended to cover those Indian citizens who are bona fide workers in other countries like in the Middle East as they are not liable to tax in these countries. Moreover, it is clarified that for an Indian citizen who becomes deemed resident of India under section 6(1A), the income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession.
Hence, the new section does not impact the taxability of salary receipt by sea fearers. They will enjoy tax-free salary as they currently become residents but not ordinarily residents as per the new Section 6(1A).
Fake news is also circulated in various places that a seafarer must complete eight months onboard to save Tax on their merchant navy receipt, which is not correct. This provision applies to the person visiting India, not to a person who is leaving India for employment.
FAQ’s on Income Tax Rules for Merchant Navy Officers
Do Indian seafarers have to pay tax for the income earned by them?
If a person is outside India for more than 184 days per his/her CDC/passport, it is not required to pay taxes on your merchant navy receipts.
Are seafarers considered NRIs?
If a person stays outside India for more than 184 days (or 185 days in a leap year) per his/her CDC/passport, the person is considered Non-Resident India under Income Tax Act 1961.
Which bank is best for seafarers?
You can have NRE/NRO account in any PSU or private banks like ICICI, Kotak Mahindra Bank, SBI etc.
What is the difference between NRO and NRE accounts?
In an NRE account, only foreign currency or a check from another NRE account can be deposited. However, NRO is a saving account for non-resident in which you can deposit Indian cash or any cheque from a regular savings account.