Taxation of Seafarer/ Merchant -Navy In India

1. MEANING OF SEAFARER OR MERCHANT NAVY

Firstly, there is no such term as ‘Seafarer’ or ‘Merchant Navy’ under the Income Tax Act, 1961 (‘Act’). There is no specific provision of exemption or taxation under Income Tax Act for ‘Seafarer’ or ‘Merchant Navy’.

In general terms, a Seafarer or Merchant Navy Worker is someone who works or travels on a boat or ship on the sea. Seafarer navigates a sea vessel or assist as a crew member in the operation and/or maintenance of Ship as part of his contractual employment.

2. EARNINGS OF SEAFARER

The Seafarer generally receives remuneration in the form of salaries from the Employer companies.

3. INCOME TAX ON SEAFARER FOR FINANCIAL YEAR 2020-21

The taxability of the salary received by a seafarer or Merchant Navy are totally based on the residential status of the seafarer or Merchant Navy.

A. RESIDENT SEAFARER

The salary received by a resident seafarer or Merchant Navy will be taxable as per the laws of the Income-tax department. No special exemption is available.

B. NON-RESIDENT SEAFARER

The salary of a non-resident seafarer will NOT be included in the total taxable income of the seafarer.

Meaning of Non-Resident Seafarer

An individual is said to be Non-Resident Seafarer if he is outside India for 183 days or more during the financial year (184 days or more in case of a leap year) for the purpose of employment. If he is not then he will be treated as a resident seafarer.

Calculation of period outside India

Rule Applicable for Voyages Start and End outside India

Stamping dates in the passport is the basic criteria for calculation of the period outside India. Generally, passport dates are used when you join and sign off from ship outside India. However, dates of the CDC are the conclusive evidence at the time of scrutiny that you are outside India for the purpose of employment.

Rule Applicable for Voyages Start or End in India

However when you join or sign off from India then the CDC dates shall be used for calculation of period outside India.

“Eligible voyage” shall mean a voyage undertaken by a ship engaged in the carriage of passengers or freight in international traffic where-

(i) for the voyage having originated from any port in India, has as its destination any port outside India; and

(ii) for the voyage having originated from any port outside India, has as its destination any port in India.

C. NEW DEEMED RESIDENT PROVISION FROM FINANCIAL YEAR 2020-21

A new Section 6(1A) has been inserted by Financial Act 2020 which is applicable beginning from the financial year 2020-21 (01st April 2020 to 31st March 2021).

Now, a person (including Ship Worker), who is citizen of India, can be categorized as Resident in India if his stay in India exceed 119 days (i.e. 120 days or more) in a financial year. This harsh rule can be a game changer in the taxability of merchant navy employees and seafarers, if they are categorized as Resident in India under the new Tax Rule of Residency. This new rule of 120 days rule is applicable to those whose Total Taxable Income in India exceeds Rs 15 Lakhs. Hence, NRI ship workers (Seafarers) are still eligible to be determined as per 182 days Residency rule and 120 days rule will not apply on them. Here it is important to note that for the purposes of calculation of Rs 15 Lakh, their ship income will not be included.

Further, even if a seafarer qualifies the 120 days clause (on the basis of his income in India exceeding Rupees 15 Lakh), and categorized as Resident in India, as per the new NOR Rules he will be categorized as Not Ordinary Resident (NOR) in that financial year. In this way, again under the umbrella of NOR, foreign income (including ship Income) will not be taxable in India.

4. IS IT MANDATORY TO FILE INCOME TAX RETURN IN INDIA

A Seafarer does not pay tax or file ITR anywhere in world. Hence, it is very important and beneficial for a Seafarer to file an ITR in India though it is not mandatory under the Income Tax Rules in India. If an ITR is filed, it works as an important document for various purposes (including loan application, visa application etc) and also serve as a record/evidence in countering any enquiry from Income Tax Department in future.

5. FREQUENTLY ASKED QUESTIONS

Q.1  Are Indian seafarers liable to pay taxes?

Ans. If they are outside India for more than 184 days (or 185 days in a leap year) as per your CDC/passport then they are not required to pay taxes on their merchant navy receipts.

Q.2 Are seafarers considered as NRI’s?

Ans. Yes, if they are outside India for more than 184 days (or 185 days in a leap year) as per their CDC/passport then they are considered Non-Resident India under Income Tax Act 1961.

Q.3  Which banks are suitable for seafarers?

Ans. They can have NRE/NRO account in any Public Sector Banks or private banks.

Q.4 What is the difference between NRO and NRE account?

Ans. In NRE account only foreign currency or a cheque from another NRE account can be deposited. However, NRO is a saving account for non-resident in which they can deposit Indian currency or any cheque from normal saving account.