Seafarer Salary Taxability in India: NRI Status, 182-Day Rule, NRE Account & IFSC Employer

A seafarer may spend most of the year outside India, work on an international vessel, receive remuneration in foreign currency and still find an Indian employer’s name, an Indian registered office or an NRE bank credit appearing in the salary records. These facts often create an immediate assumption that the salary is either wholly exempt or wholly taxable. Both assumptions can be wrong. The Indian tax treatment does not turn on a single label such as “merchant navy”, “foreign flag”, “NRE account” or “IFSC employer”. It emerges from a connected reading of residential status, the place where employment services were rendered, the nature of the voyage, the place and manner of receipt, and the evidence maintained by the employee.

In this article, I have discussed the practical applicability, residential-status calculation methodology, taxability of salary components, treatment of NRE credits and paid leave, and key precautions relating to seafarer salary under the Income-tax law. In case you have any doubt after reading this article, or if you feel that any practical aspect requires further discussion, you may contact me at the contact details mentioned at the end of this article.

Why seafarer salary creates unusual tax questions

Salary taxation normally appears straightforward: an employer pays an employee and the amount is assessed under the head “Salaries”. Seafarer employment is different because the employee, the employer, the vessel, the bank account and the place where services are performed may all be connected with different jurisdictions. A crew member may sign an employment agreement in India, join a vessel at a foreign port, work across international waters, receive a monthly salary during an off-period spent in India and later rejoin another foreign-going ship. It is therefore essential to separate the legal tests instead of applying a broad rule based only on occupation.

For FY 2025-26, relevant to AY 2026-27, the governing framework remains sections 5, 6 and 9 of the Income-tax Act, 1961, Rule 126 of the Income-tax Rules, 1962 and CBDT Circular No. 13/2017 dated 11 April 2017, read with the subsequent correction concerning foreign-going ships. The Income-tax Act, 2025 came into force on 1 April 2026. For tax years beginning on or after that date, the corresponding framework is contained in sections 5, 6 and 9 of the 2025 Act, with the prescribed day-count rule carried into the Income-tax Rules, 2026. The language has been reorganised, but the core principles relevant to seafarer salary continue: residence determines the breadth of taxable income, and the place of service determines whether salary is regarded as earned in India.

The first enquiry is residential status, not the bank account

A seafarer’s residential status is determined separately for every financial year. It cannot be permanently fixed by the description “NRI”, by the type of bank account maintained, or by an earlier year’s status. Under section 6 of the 1961 Act, an individual is ordinarily resident if the stay in India reaches 182 days during the relevant year, or if the individual satisfies the alternative test of 60 days in the relevant year together with 365 days in the preceding four years. However, where an Indian citizen leaves India during the year as a crew member of an Indian ship or for employment outside India, the 60-day limb is replaced by 182 days. Thus, in the departure year, the individual will ordinarily remain non-resident so long as the stay in India does not reach 182 days, subject to the special deemed-residence provisions.

This is where a common practical error arises. Advisers and employees often say that a seafarer must remain outside India for “182 days”. In a normal 365-day financial year, that is not sufficient: 182 days outside India leaves 183 days in India. To keep the stay in India at 181 days or less, at least 184 qualifying days must ordinarily fall outside India or be excluded under the prescribed rule. In a leap-year financial year of 366 days, at least 185 days must ordinarily fall outside India or be excluded.

The correct computation must be made from the full travel record. Every day physically spent in India ordinarily counts, including off-periods, paid leave, family visits, medical leave and days on which no employment work was performed. Whether the salary paid for those days is taxable is a separate source question; the days themselves remain relevant for residential status.

How the CDC rule works

The Continuous Discharge Certificate, commonly called the CDC, is central to the statutory day-count mechanism for crew members of qualifying foreign-bound voyages. Under Rule 126, the period beginning with the date of joining the ship recorded in the CDC and ending with the date of signing off recorded in the CDC is excluded from the period of stay in India for an eligible voyage. The wording covers the full period from commencement to completion, and both terminal dates are ordinarily included in the computation.

The special rule is not a universal substitute for the passport. An “eligible voyage” is defined with reference to international traffic where a voyage commencing at an Indian port has a foreign port as its destination, or a voyage commencing at a foreign port has an Indian port as its destination. Foreign-port-to-foreign-port voyages, offshore assignments and other patterns may not fit this prescribed definition. That does not automatically mean that all such days become Indian days; it means the statutory CDC exclusion may not be the correct mechanism and the actual physical-presence record must be established through passport stamps, immigration data, flight tickets, joining documents and employer records.

The 120-day rule and deemed residence must not be ignored

The 120-day rule applies to an Indian citizen or person of Indian origin who, being outside India, comes on a visit to India and whose Indian income, excluding income from foreign sources, exceeds ₹15 lakh. If such a visitor remains in India for at least 120 days during the year and for at least 365 days during the preceding four years, the person may become resident but not ordinarily resident. This visitor rule should not be mechanically applied to every seafarer who leaves India for employment during the same year; the precise factual category under section 6 must be identified.

A separate deemed-resident rule may apply to an Indian citizen whose Indian income, other than income from foreign sources, exceeds ₹15 lakh and who is not liable to tax in any other country or territory by reason of domicile, residence or a similar criterion. Such an individual is treated as resident but not ordinarily resident. Seafarers connected with no-tax jurisdictions require careful examination under this rule. The absence of actual foreign tax payment is not, by itself, conclusive; the enquiry is whether the person is liable to tax under the foreign jurisdiction’s residence framework.

Residential status decides the width of India’s taxing right

Once the day count is completed, the consequences are materially different for a resident and ordinarily resident, a resident but not ordinarily resident and a non-resident. A resident and ordinarily resident individual is taxable in India on worldwide income under section 5(1). Consequently, salary from a foreign employer, remuneration retained abroad, income credited to an NRE account and pay for services rendered on a foreign ship are ordinarily taxable in India, subject to relief for foreign taxes under sections 90 or 91 and the applicable tax treaty.

A resident but not ordinarily resident individual occupies an intermediate position. Foreign income that accrues outside India is generally excluded unless it is derived from a business controlled in India or a profession set up in India. However, income first received in India can still fall within the scope of total income. The protection contained in CBDT Circular No. 13/2017 is expressly framed for a non-resident seafarer; an RNOR case therefore requires independent examination rather than an automatic extension of the Circular.

A non-resident is taxable only on income received or deemed to be received in India and income accruing, arising or deemed to accrue or arise in India. The salary source rule then becomes decisive: salary is regarded as earned in India to the extent it is payable for services rendered in India. Salary attributable to services rendered outside India does not ordinarily accrue in India merely because the employee is an Indian citizen or the payer is an Indian company.

Where the services are rendered is more important than where the employer sits

The location, incorporation and business address of the employer are frequently overemphasised. An Indian company can employ a non-resident seafarer for services rendered outside India. Conversely, a foreign company can employ a seafarer for duties actually performed in India. Section 9(1)(ii) focuses on salary earned through services rendered in India, not merely on the payer’s residence.

The Bombay High Court applied this principle in CIT v. Avtar Singh Wadhwan [2001] 247 ITR 260 (Bom.). The employer was the Shipping Corporation of India, an Indian employer, yet the Court treated the place where services were rendered as the material factor for determining accrual. The employer’s Indian identity did not convert foreign-service salary into salary earned in India.

The same analysis applies when the Indian employer is located in an International Financial Services Centre. An IFSC is located in India; it is not a foreign territory for an employee’s salary taxation. The presence of an IFSC address therefore neither creates an employee exemption nor automatically makes every payment taxable. Any deduction or incentive available to an eligible IFSC unit, including an employer-level benefit under section 80LA of the 1961 Act, belongs to the qualifying entity and does not pass through as a salary exemption to the employee. The employee’s position must still be tested under sections 5, 6 and 9.

NRE credit does not create the exemption; it protects the receipt

CBDT Circular No. 13/2017 addresses a recurring controversy. Revenue authorities had sought to tax salary earned by non-resident seafarers outside India merely because the foreign-service salary was directly credited to an NRE account maintained with an Indian bank. The Circular clarifies that salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in total income merely because it is credited to the NRE account. Circular No. 17/2017 corrected the description so that the position covers a foreign-going ship with an Indian or foreign flag.

The Calcutta High Court adopted this approach in Smt. Sumana Bandyopadhyay & Anr. v. DDIT (International Taxation), GA 3745 of 2016 with ITAT 374 of 2016, judgment dated 13 July 2017. The assessee was a non-resident marine engineer whose foreign-service salary was remitted directly to an NRE account in India. The Court held that the salary did not become taxable merely because of the NRE credit and treated the CBDT Circular as clarificatory.

The Circular should not be read as saying that every credit to an NRE account is exempt. The underlying remuneration must first be shown to relate to services outside India and the employee must be non-resident for the relevant year. An NRE account is evidence of the receipt arrangement; it does not cure an otherwise taxable Indian-duty salary.

A direct credit to an NRO account or an ordinary Indian savings account is not expressly covered by Circular No. 13/2017 and should be examined more cautiously under section 5(2)(a). By contrast, where salary is first received in a foreign bank account and later transferred to India, the later remittance is ordinarily a movement of funds already received and not a second receipt of income. The banking trail should make that sequence clear.

Paid leave or an off-period spent in India

One of the most difficult practical questions arises when a seafarer signs off, returns to India and continues to receive salary while doing no work. Physical presence in India during that period unquestionably affects the residential-status day count. It does not, however, automatically decide the source of the salary.

Section 9(1)(ii) expressly treats salary for a rest or leave period as earned in India where that period forms part of the employment contract and is preceded and succeeded by services rendered in India. The statutory deeming rule is therefore tied to Indian services on both sides of the leave period. Where the employee’s preceding and succeeding assignments are services rendered outside India on foreign-going ships, and no office work, training, repair supervision, technical assistance or other employment duty is performed from India, the paid off-period can ordinarily retain its nexus with foreign service.

The result changes where the employee attends an Indian office, participates in mandatory training in India, supervises repairs at an Indian port, performs remote technical functions from India or remains assigned to an India-based operation. Salary attributable to those activities is earned in India and is taxable, even if the employee’s broader role is that of a seafarer. Where a month contains both Indian and foreign duty, a reasonable allocation based on duty days, voyage records, contract terms and employer certification should be prepared.

How salary-slip components should be analysed

Thus, where the employee is non-resident and the earning is attributable to services rendered outside India, the related salary components are ordinarily outside total income under section 5(2), read with section 9(1)(ii). Where the employee is resident and ordinarily resident, or the component relates to services performed in India, the same amount is ordinarily taxable under the head “Salaries”.

True exemptions under section 10 should be kept distinct

Foreign-service salary of a non-resident seafarer is usually described more accurately as income outside the scope of total income, rather than as a blanket section 10 exemption. This distinction matters because there are other receipts that are genuinely exempt under section 10. Interest on an eligible NRE or FCNR account may be exempt under section 10(4)(ii), subject to the FEMA status and applicable conditions. NRO interest, on the other hand, is ordinarily taxable under “Income from Other Sources”.

A qualifying official-duty allowance or reimbursement may fall within section 10(14), read with Rule 2BB, to the extent permitted and properly evidenced, subject also to the tax regime selected by the employee. Gratuity, retirement leave encashment, commuted pension and recognised provident-fund withdrawals have their own provisions and limits. Those exemptions arise from the nature of the receipt, not from the employee’s status as a seafarer.

Section 10(6)(viii), sometimes cited in discussions of ship employees, applies to a non-resident foreign citizen serving on a foreign ship whose stay in India does not exceed 90 days. It is not the ordinary provision governing an Indian-citizen seafarer. Similarly, section 10(7) concerns allowances and perquisites paid outside India by the Government to an Indian citizen serving abroad and does not extend to a private shipping employee.

Conclusion

The taxability of seafarer salary is not governed by a special occupational exemption. It is governed by a sequence of legal questions. First, calculate residential status correctly, remembering that a 365-day year ordinarily requires at least 184 qualifying days outside India to keep the India stay below 182 days. Second, establish where the employment services were rendered. Third, identify whether an off-period paid in India is genuinely linked to foreign service or to Indian duties. Fourth, trace the first receipt and preserve the NRE or foreign-bank evidence. Finally, report the amount in the return consistently with its legal character.

Where an Indian-citizen seafarer is non-resident, performs services outside India on a foreign-going ship and receives the related remuneration in an NRE account, the salary is ordinarily not includible in Indian total income under section 5(2) read with section 9(1)(ii), notwithstanding that the employer is an Indian company or is situated in an IFSC. Where the employee is resident and ordinarily resident, performs duties in India or cannot substantiate the foreign-service nexus, the outcome changes. In seafarer taxation, the decisive evidence is not the job title or bank-account label; it is the complete alignment of residence, service, voyage, receipt and documentation.

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