Table of Contents
- TAX CONSULTANCY FOR SEAFARERS, MERCHANT NAVY WORKERS, MARINERS – SERVICES IN DELHI, MUMBAI, CHENNAI, KOLKATA, HYDERABAD, BANGALORE, NOIDA, GURGAON, CHANDIGARH, OTHER MAJOR CITIES OF INDIA
- Basics about Seafarer
- How Does Seafarer Earn Income
- Taxability of Seafarer Income In India
- Judicial Pronouncements
- Central Board of Direct Taxes (CBDT) CIRCULAR No 13/2017 Dated April 11, 2017
- Calculation of Number of Days Outside India – Rule 126 of Income Tax Rules – Vide Income Tax Notification No 70/2015, Dated August 17, 2015
- New Rule of Residential Status (120 Days Stay In India Rule) – Finance Act 2020 – Impact on Seafarers, Merchant Navy Personnel
- Budget 2022 Impact On Seafarers
- Seafarer Taxation – Questions Still Unclear
- Frequently Asked Questions (FAQs) Wrt Seafarer Taxation in India
TAX CONSULTANCY FOR SEAFARERS, MERCHANT NAVY WORKERS, MARINERS – SERVICES IN DELHI, MUMBAI, CHENNAI, KOLKATA, HYDERABAD, BANGALORE, NOIDA, GURGAON, CHANDIGARH, OTHER MAJOR CITIES OF INDIA
Basics about Seafarer
Before understanding seafarer taxation, it is important to understand who is seafarer. A seafarer, sailor, merchant navy, mariner or seaman is a an individual person, who works aboard on a ship or watercraft. This person works as part of ship crew, and/or may also work in any one of a number of different fields that are related to the operation and maintenance of a ship. Generally, this person sails on ship as part of his employment. Generally, these individuals are Citizens of India and can be said as Non-Resident Indian (NRI) also.
How Does Seafarer Earn Income
Generally, a seafarer earns income under a contract of employment or otherwise, where the shipping company pays the seafarer on the basis of terms of the contract. Generally, this payment to seafarer happens to his Indian NRE Bank Account in foreign currency.
Taxability of Seafarer Income In India
Under Income Tax Act, 1961 (‘Act’), there is no such term as Seafarer. The Act provides the taxability based on Residential Status of Individual. Under the Act, seafarer tax liability calculation can be on the basis of residential status.
Resident Seafarer: If stay in India is for 182 days or more during a financial year then straightaway the seafarer shall be Resident in India. If so, and he is also categorized as Ordinary Resident, then global income of that person shall be taxable in India. Hence, his income from working on ship shall be taxable in India.
Non-Resident or Not Ordinary Resident Seafarer: If seafarer stay in India is less than 182 days in a financial year then he may be categorized as Non-Resident in India. Also, if on the basis of past year records, the seafarer is Not Ordinary Resident in India then his foreign income will not be taxable in India. However, in this case he need to ensure that he receives the income outside India. In this regard as per CBDT clarification income received in NRE account is considered as income received outside India.
Till April 2017, there were lot of litigation and confusion wrt taxability of seafarer income received in NRE Account. In this regard, for individuals working outside the territorial waters of India, various rulings have held that if income is earned & accrued overseas then the same is not taxable in India if it received in Indian NRE Bank Account.
Central Board of Direct Taxes (CBDT) CIRCULAR No 13/2017 Dated April 11, 2017
CBDT has issued a circular no 13/2017 on April 11, 2017, where they have given certain clarifications and guidance wrt Seafarer taxation. The board clarifies that salary, of which accrual to seafarer is outside India on foreign ships, shall not be taxable in India in following cases:
- Salary receipt is in in Non Resident External (NRE) account with an Indian Bank.
- Accrual of salary is outside India. Salary is in relation to services on (i.e. accrual of salary)on a foreign ship.
- The Individual, who earn above salary, is a Non-Resident in India as per the provisions of the Act.
With this circular, it is clear for seafarer that just receipt of income in NRE Bank Account will not attract tax provision of ‘Received in India’. This is a big relief for Individual Seafarer, which avoids unnecessary litigation for them.
Calculation of Number of Days Outside India – Rule 126 of Income Tax Rules – Vide Income Tax Notification No 70/2015, Dated August 17, 2015
Reference CBDT Income-tax (Twelfth Amendment) Rules, 2015 effective April 1, 2015 (Notificaton No 70/2015 F No 142/12/2015-TPL), in relation to Seafarer or Merchant Navy Employees etc, to compute number of days outside India (if the ship is moving from Indian Port to any Port outside India or vice versa) shall be counted from the sign on date entered in Continuous Discharge Certificate (CDC) of the seafarer till the date of sign off entered in the CDC. Hence, once seafarer signs on on CDC, his stay outside India starts and it ends till he signs off on CDC. So, it is beneficial for seafarers.
Generally, Seafarers/Merchant Navy Employees sail into sea for more than 185 days (i.e. less than 182 days in India) and this makes them a Non-Resident in India as per Indian Tax Rules. Though their stay in India remains less than 182 days, however, most of times their stay remains more than 120 days in India. Budget 2020 has provided changes in the Residential Status Rule, where a person can be categorized as Resident in India if he/she is a citizen of India and stays in India for 120 days or more in a financial year. Hence, for seafarer, merchant navy employees it can be a harsh rule, and they can be determined as Resident in India under the new Tax Rule of Residency. However, here is a catch in the law, which says that 120 days rule will apply to those who have Total Taxable Income in India for more than Rs 15 Lakh. Hence, in general, most of Seafarers or Merchant Navy Employees does not have Taxable Income in India for more than Rs 15 Lakh, hence, they will still qualify as Non-Resident on the basis of 182 days rule and 120 days rule will not attract them. For this 15 Lakh Rupees calculation, their ship income will not be included. Further, even if a seafarer qualifies this 120 days clause (on the basis of his income in India more than 15 Lakh Rupees), he will be categorised as Not Ordinary Resident (NOR) in that year. For more on this new Residential Rule, please refer below link.
Budget 2022 Impact On Seafarers
Budget 2022, though on plain reading of news and other documents, seems to have nothing for Individuals including Seafarers. However, going into little deeper, it provides 2 important features which will significantly impact Seafarers and Merchant Navy Workers. Here is a brief summary of same:
- 2 More Years For ITR Filiing: Present tax provisions provide that an ITR, even a delayed ITR with penalty fee, cannot be filed or revised after Dec 31 of the relevant assessment year. E.g. ITR of FY 2021-22 cannot be filed or revised after Dec 31, 2022 (unless date is extended by a separate notification for a particular year). Now, with the new provision 8A in section 139, tax payer will be able to file ITR upto 2 years from the end of relevant assessment year i.e upto 3 years from the end of relevant financial year. E.g. ITR of FY 2021-22 can now be filed upto March 31, 2025. This is major relief for seafarers who are sailing on sea for most part of the year and many times miss to file their ITR. With the provision they will be able to file ITR belatedly.
- E-Passports: Budget 2022 proposed launching of E-passport with embedded chip. This will help in recording of data of arrival and departures. Hence, by interconnecting of information by different authorities, data will be captured by the Tax Authorities and residential status of Seafarer will be available to them. Many seafarers, who are not filing their Tax Returns despite non-completing their Non-resident number of days, will have to cautious to do a proper tax and residential status planning.
Seafarer Taxation – Questions Still Unclear
Certain questions are still unclear or there may be a litigation wrt certain points, such as:
- CBDT clarification seems to limit the benefit to seafarers wrt his services on a Foreign Ship. What about salary received in relation to services on Indian Ship?
- Seafarer must receive Salary into an NRE account. What if seafarer receive salary in normal bank account in India?
- In some cases (eg contract with an entity in India for working on foreign ship), there may be some contradiction wrt determination of Residential Status as per the provisions of section 6 of the Act viz a viz the intentions of the Circular. Here, in some case, there may be a situation when seafarer can be Resident on 60 days stay in India basis?
Frequently Asked Questions (FAQs) Wrt Seafarer Taxation in India
Q. Whether a Seafarer or merchant navy employee need to pay tax on the salary income earned by him for his services on Ship?
Ans: If a seafarer earns a salary in relation to his employment on a foreign ship, and he is a non-resident and receive his salary in NRE Bank Account in India, then as per CBDT circular (April 2017) his salary income is not taxable in India.
Q. Whether Seafarer, Mariner need to file an Income Tax Return in India, if they are Resident in India or Non-Resident in India? What is the ITR Form generally applicable to Seafarers NRIs?
Ans: Everyone, including seafarer or mariners, need to file an ITR in India if there is any income taxable in India. Filing of ITR in India has no connection with the Residential status of seafarer. Seafarers NRIs have to choose Form 2 for ITR filing.
Q. How can a Seafarer open an NRE bank A/c in India? What are the documents etc requirement for Seafarer Bank A/c?
Ans: All the banks/branches, who have NRI Banking facilities, provide Seafarer Bank Account (NRE Account) facilities to mariners. On the websites of all the banks the standard and simple process is available to open seafarer (NRE) Bank account. There are some basic documents requirement for opening a Seafarer (NRE) bank account. Some of documents are valid passport copy, valid visa, continuous discharge certificate (CDC), self declaration etc.
Q: I am a searfarer, merchant navy employee. Whether new amendments, as passed through Budget 2020 wrt Residential Status, will impact my taxation in India?
Ans: Reference to present settled position (as per CBDT circular) and the condition of Rs 15 Lakh, the Budget 2020 amendments in Residential Status should not affect the Seafarer taxation. As per the final rules passed via Budget 2020, the new rules (120 days stay in India for resident category) shall be applicable to those who have taxable income in India for more than Rs 15 Lakh. Hence, seafarer should be exempted from new rule of 120 days stay and they can still fall in 182 days rule if their total income from Indian sources is less than Rs 15 Lakh. However, seafarer must consult with their CA or Tax Consultant to understand their taxation as per their facts.
Q: Whether Seafarer, Mariner or merchant navy employee need to file ITR in India? What is the due date for ITR filing in India for FY 2020-21? Can I still file ITR for FY 2019-20 and earlier years now? What are the documents required for filing ITR by Seafarer?
Ans: Other than Ship Income, Seafarer may have different sources of Income in India e.g. Bank Interest Income, Mutual Fund or Shares Capital Gain, Rental Income, Dividend Income etc. Otherwise, also, since seafarer incurs many financial transactions in India, which gets reported to IT Department directly or indirectly, it is advisable that seafarer must file an ITR in India. This also work as a tax record for them as they do not file tax return in any other country. There are various benefits of filing ITR in India, which applies to seafarer, mariner as well. General Due date for ITR filing in India for seafarer is July 31, of assessment year. Hence, for FY 2020-21 ITR can be submitted by July 31, 2021, which is now extended to Dec 31, 2021. Further, If any seafarer has missed filing of ITR for earlier years then there is an extended time available for filing FY 2019-20 ITR till May 31, 2021. ITR for FY 2017-18 or earlier years cannot be filed, however, if there is a refund due, then an application can be submitted with specified authority for condonation and accordingly ITR can be filed for those earlier years. Documents for filing of ITR can be arranged by the Seafarer according to components of their Income. Here is a brief list of documents and processes of ITR filing, which seafarer can arrange according to their income components. Further to this, though their ship income may be falling out of the Indian taxation, they must keep a full record of their Ship income to counter any tax query by the Income Tax Department in India. They should also keep a clear record of their passport with India leaving and entry records.
Q: What will be the tax status of Seafarer, Merchant navy employee if their stay in India exceeds 181 days during Financial Year 2020-21 due to corona virus? What will be the impact of covid 19 on seafarer taxation if they could not go back to ship due to corona virus conditions and their stay in India exceeds 181 days during the year?
Ans: Though the govt is announcing relief for conditions where due to corona virus or lock down a person (including seafarer) could not leave India. However, this is a cautious situation and also reference to specific facts it is advisable to seek separate advisory on this.
Q: What are the information and documents required to file ITR in India by a Seafarer, Merchant navy employee? What is the due date for filing ITR for FY 2020-21? What are the benefits of filing ITR in India by Seafarer, Merchant navy employee?
Ans: Basic document requirements are bank statements. Further, as per the scope of income, which is earned during the respective year, information and documents are required. A detailed analysis for this can be checked here. Due date of filing ITR in India is July 31 of assessment year. Hence, for FY 2020-21 ITR, due date for filing ITR for assessee (including seafarer, mariner, merchant navy employees) is July 31, 2021. This date has been extended to Dec 31, 2021 due to covid pandemic. Though there may not be tax payable on total income, it is advisable for seafarer, merchant navy employees to file ITR in India. ITR filing can provide various benefits to seafarer such as.
S Lohia & Associates – CA, Tax Consultant Services For Seafarer:
S Lohia & Associates, Chartered Accountants, can be helpful for following services of NRI Seafarer:
- Guiding & Advising in relation to setting up terms of contract for working on ship to optimize tax within the provisions of Act
- Reviewing their ship services contract terms and advise needful changes etc
- Determination of Residential Status Advising on receipt of income in bank account in India
- Interpreting the legal position in relation to taxation of income from services on ship
- Computing taxation of income from other sources in India eg Rental Income, Interest Income.
- Advising on RBI/FEMA Regulations wrt NRE Bank Account
- Assisting in Preparation & filing of Income Tax Return in India
- Representing before Income Tax Authorities in relation to various litigation or notices from Income Tax Department
CA Sulabh Lohia, Bharat Kandari