Merchant Navy Workers Taxation in India

Seafarers, Merchant Navy Workers Taxation In India - Services In All Major Cities In India i.e. Delhi NCR, Mumbai, Kolkata, Chennai, Kerala, Hyderabad, Bangalore, Gujarat, Punjab, UP, Other Cities

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.

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. Hence, it benefits seafarer for maintaining Non-Resident status in India.

Frequently Asked Questions (FAQs) Wrt Seafarer Taxation in India