What is Taxation of Seafarer or Merchant Navy Worker?
- 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.
- The Income Tax Act of India, provides the taxability based on Residential Status of an Individual whether the same is Seafarer or Merchant Navy Worker or any other. Hence, a seafarer’s tax liability is calculated on the basis of his residential status.
- Generally, seafarers (or merchant navy workers) are Citizens of India, and based on their number of days stay in India, are classified as Non-Resident or NRI.
Resident & Ordinary Resident Seafarer (ROR) – Global Income May Be Taxable In India
Just like any other person, if a seafarer stays in India for 182 days or more during a financial year, then he shall be considered Resident in India. Further, if he is also categorized as Ordinary Resident, then his global income shall be taxable in India. Hence, in case of a seafarer who is ‘Resident & Ordinary Resident’ (R&OR) in India, his income from working on ship shall be taxable in India. However, taxability may further be subject matter of various other factors.
‘Non-Resident Seafarer’ (NR)
If a seafarer stays in India for less than 182 days in a financial year then he is considered as Non-Resident in India. In this case, Seafarer’s foreign income (including income from services provided on foreign ship) will not be taxable in India. However, as per CBDT circular (April 2017), he/she need to receive their income in NRE account.
Not Ordinary Resident Seafarer (NOR)
Sometimes, a person (including Seafarer), due to stay in India for more than 181 days, become a Resident in India. However, based on his preceding year records, he still can be categorised as Not Ordinary Resident (NOR). Here again, considering various facts and circumstances of the seafarer, his/her foreign income (including ship income) may not be taxable in India.
Budget 2020 New Residential Rule of 120 Days Stay In India – Tax Impact on Ship Workers, Seafarers, Merchant Navy Employees
As per the earlier rules, a person (including Ship workers) were categorised as Resident In India on the basis of stay in India for 182 days or more. And since generally seafarers keep their Ship Schedule in such way that they sail into sea for 185 days or more. In this way, in may cases they used to spent time in India for 4-6 months (but less than 182 days). In general, they stay in India for more than 120 days to keep off from ship and stay with family in India.
Budget 2020, has introduced new provisions in Residential Status Guidelines. 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 gamechanger in the taxability of merchant navy employees and seafarers, if they are categorised as Resident in India under the new Tax Rule of Residency.
However, here is a catch in the law. As per the final print of the law (as passed by the Parliament), the new rule of 120 days rule is applicable to those whose Total Taxable Income in India exceeds Rs 15 Lakh. In case of Ship workers, in general, the taxable income in India of most of Seafarers or Merchant Navy Employees does not exceed Rs 15 Lakh. 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 categorised 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.
Hence, in nutshell, 120 days new Residential Rule is not going to impact Ship Employees (Seafarers, Mariner, Merchant Navy Employees). However, a proper advise, as per the facts, must be sought to avoid any tax litigation.
Receipt of Income Outside India Vs Taxability – Seafarer NRE Bank Account
As per the provisions of Income Tax Act, taxability in India is connected with receipt of income in India also. Hence, to avoid taxability in India, besides Residential Status, one need to ensure that Income is received outside India. As per the CBDT clarification in relation to Seafarer or Merchant Navy Employees, income received in NRE account is considered as income received outside India. Hence, Seafarers/Mariners/Merchant Navy Workers can open an NRE bank account with bank and receive their salary or income from working on ship in that bank account to claim the taxability exemption under Income Tax Act.
CBDT Circular no 13/2017 issued on April 11, 2017 - Seafarer, Mariner, Merchant Navy Workers/Employees Taxation in India
This is a very important and fundamental Circular in relation to deciding taxability of Seafarer or Merchant Navy or any other person working on ship. As per this circular, the salary earned in relation to services on ship (i.e accrued outside India) shall not be taxable in India. However, the conditions of non-taxability of such income of Seafarers are as under:
- Salary is accrued/earned outside India. Salary is in relation to services on (i.e. accrual of salary) on a foreign ship.
- Salary is duly received in Non Resident External (NRE) bank account with a Bank in India. This means that Salary cannot be received in a bank account other than NRE Bank Account to claim this exemption.
- The individual, who earns above salary, is a Non-Resident in India as per the provisions of the Act.
This circular clarifies that for seafarers, just receipt of income in NRE Bank Account will not attract tax provision of ‘Received in India’. This circular provides a big relief and create a tax relief bridge for Individual Seafarers, which avoids unnecessary litigation for NRI Seafarer in India, which was arising a lot by the income tax department before this circular. Circular important is this that it bound the Income Tax Department to follow it, though the Seafarer is still open to seek further tax benefit in addition to this circular as provided in other provisions of law or judicial pronouncements.
How to Compute No of Days – CBDT Notification No 70/2015, Dated August 17, 2015
Reference to special conditions in case of Ship workers number of days outside India has also remained a question of litigation. In this regard, CBDT vide Income-tax (Twelfth Amendment) Rules, 2015 effective April 1, 2015 (Notification No 70/2015 F No 142/12/2015-TPL) has provided guidelines for computation of number of days outside India in relation to Ship Workers or Merchant Navy Employees etc. Hence, 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.
Frequently Asked Questions (FAQs) Wrt Seafarer Taxation in India
Q. Whether it is necessary for a Seafarer to file Income Tax Return in India, if he does not have much income in India (other than Ship Income)?
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.
Q. What is the due date of Seafarer Income Tax Return Filing In India? What is the time limit for filing Belated ITR for Seafarers? Can Seafarer file ITR for earlier years?
Like any other Individual in India, who is a salary employee, due date for filing ITR in India for Seafarer or ship worker is July 31 of assessment year. In relation to FY 2019-20 the due date has been extended to Jan 10, 2020. However, the ITR (Belated ITR) can still be filed upto March 31, 2021. Due date for filing FY 2020-21 ITR will be July 31, 2021. If Seafarer wishes to file ITR for earlier year then the same can be filed after seeking approval of Commissioner of Income Tax subject to certain conditions.
Q. Who is supposed to pay Income Tax?
Any Individual or group of Individual or artificial bodies who/which have earned income during the previous years are required to pay Income tax on it. The IT Act recognizes the earners of income under seven  categories. Each category is called a Status. These are Individuals, Hindu Undivided Family [HUF], Association of Persons [AOP], Body of individuals [BOI], Firms, Companies, Local authority, Artificial juridical person.
Q. What is the taxation of a Merchant Navy Employee or Seafarer in India? What exemption is provided by CBDT Circular under Income Tax Act to Seafarers?
To Seafarer or Merchant Navy Worker, in relation to his employment on a foreign ship Earns salary + he is a non resdient + salary received in NRE Bank account (in India) = salary income not taxable in India (CBDT Circular 13, April 2017)
Q: What is New Residency Rule 120 days? How will it impact Seafarer or Merchant Navy Worker taxation in India?
Reference to Budget 2020 Amendments, a Citizen of India can be determined Resident in India on the basis of stay in India for 120 days or more. However, there is a condition of Rs 15 Lakh Income in India (i.e. other than Foreign Ship Income). Hence, considering the 15 Lakh Rs income condition, in general, seafarers or merchant navy workers will not be affected by this new Rule. However, on facts to facts basis, in many cases the new rule will play an important role in Seafarer Taxation. Hence, Seafarers or Merchant Navy Workers need to structure their Foreign Ship Income and No of days stay in India properly. Ideally, Seafarers must file an ITR on annual basis and keep consulting with their tax consultant to understand the implications of various provisions.
Q: What are the documents and information required for filing of ITR by Seafarer, Mariner or merchant navy employee? What is taxability of Interest Income earned by Seafarer on their NRE Bank A/c with a Bank in India?
In addition to Ship Income, generally, Ship workers or Seafarers earn Interest Income (Bank Account in India), Rental Income (Immovable Property in India), Capital Gain and Dividend Income (Mutual Funds and Shares). Seafarer need to show this income in their ITR. In relation to filing their ITR in India, Seafarer need to arrange their all Bank Statements, Investment related documents (Mutual Fund/Shares Summary Report) and other relevant document connected with their income. Further, interest income from NRE Bank Account is exempt under section 10 (4) (ii) of the Income Tax Act subject to condition that he/she is Non-Resident and allowed to maintain NRE Bank Account as per RBI Laws. However, seafarer need to show their NRE Account Interest income in the ITR under exempt income details.
Q: What are the records Seafarer should keep in relation to their Ship Income. need to file ITR in India?
In relation to their Ship Income, seafarers or merchant nave employee or any other ship workers, must maintain their all records in relation to their Ship Income. These records include their Passport Copy, Ship Contract, NRE Bank Statement, Emails with Ship Employer, All Other Records created/generated during employment on Ship. All these record will help Ship Worker Seafarer to establish their eligibility for exemption under CBDT Circular 13 of April 11, 2017.
Q: What are the corona virus tax relief provided by Govt of India to Seafarer or Merchant Navy Employee?
In relation to FY 2019-20, Govt of India has provided relief via CBDT Circular 11 of 2020. It says that if an Individual who came to India before March 22, 2020 and could not go back then March 22, 2020 to March 31, 2020 period will not be counted in number of days stay in India i.e. 10 days blanket relief for counting number of days stay in India. Further, if that person has quarantined in India due to Corona then quarantine period will also be excluded for computation of number days stay in India.
Further, in relation to FY 2020-21, Govt has not announced any exemption yet, however considering the Covid-19 pandemic circumstances and lockdown conditions, some exemption or relief is expected by Budget 2021.
Q: Why should Seafarer file their ITR in India? What are the benefits of filing ITR in India by Seafarer, Merchant navy employee?
Seafarers or Merchant Navy Employees are citizens of India. Due to their peculiar status, their Ship Income does not get taxed in any Jurisdiction. However, by their citizenship, abode, permanent house, family and other reasons, their everything is linked and lie in India. They do many financial transactions in India, which gets reported to Income Tax Authorities also. Hence, even though the seafarer does not have any taxable income in India or their income is less than taxable limit they must file an ITR in India. Also, an ITR record helps Seafarer to respond any future enquiry by Tax Department. There are various other numerous benefits of filing ITR.
NRI Tax Service – CA, Tax Consultant Services For Seafarer:
NRI Tax Service can be helpful for following services of NRI Seafarer:
- Complying Income Tax Provisions e.g. Filing of Income Tax Return etc.
- Advising and interpreting the Income Tax Laws in relation to Seafarer Taxation In India.
- Structuring, Advising and Reviewing their ship services contract etc
- Structuring, Advising and Planning in relation to Residential Status
- Consultation and planning services in relation to RBI/FEMA Regulations wrt NRE Bank Account and other provisions.
- Representing services in relation to litigation with Income Tax Authorities