Income Tax on Seafarer (Merchant Navy)
A Seafarer refers to a sailor or someone who travels/works regularly on a ship. The term includes a variety of ranks and professions who are integral to the successful operation of an ocean-going vessel.
The domestic tax law in India covers anyone who serves on an Indian ship and Indian citizens serving onboard foreign ships. The provisions of the Act apply equally to the Captain as it does to an ordinary seaman.
The taxability of a person in India is basically defined by his residential status i.e. is he a (i) Non- resident (ii) Resident but not ordinarily resident in India or (iii) Resident and ordinarily resident.
The residential status of an individual is to be determined on the period of stay of the taxpayer in India and is to be computed separately for each financial year.
Sailing on Indian Ship
Under the provisions of the Income tax Act, if an Indian citizen leaves India in any FY as a member of an Indian ship and his stay in India is less than 182 days he would be considered as Non – Resident for income tax purposes. It is pertinent to note that crew members who are already employed on the Indian ship, will also be considered as non – resident if his stay in India is less than181 days .It has also been clarified that Indian ships operating beyond Indian territorial waters will be considered as outside India. The time spent on a ship in Indian Territorial waters is considered as period of service in India. In other words, the number of days outside India of Indian crew working on such Indian ships gets counted only from the date when the Indian ship crosses the territorial waters of India.
Sailing on foreign Ship
Indian crew serving on foreign ships for 182 days or more are treated as non – resident in India irrespective of where the ships trades (including Indian waters). The same is computed as per the provisions of Rule 126 wherein the stay would be considered as per the Continuous Discharge Certificate .
With effect from April 2020, in the event an Indian citizen is not liable to pay tax in any other country and his total income from Indian sources exceeds INR 15 lakhs, he shall be deemed to be tax resident in India. This would have implications for seafarers sailing on ships based out of jurisdictions where there is no tax regime or where there is a tax regime, but no taxes are liable to be paid (such as Dubai, Bermuda etc).
In short, such Indian non-resident seafarers who are not paying tax in any country will be deemed to be resident but not ordinarily resident in India. In such cases, there will be no liability to pay tax on foreign income. The liability to pay tax on such deemed resident will be only in respect of business controlled in India or profession set up in India (provided the same exceeds INR 15 lakhs in a FY).
182 days vs 120 days
The Finance Bill 2020 has reduced the stay in India threshold of 182 days to 120 days for an Indian citizen or a Person of Indian Origin coming to India on a visit (if his total income from other than foreign sources exceeds INR 15 lakhs). However, the said amendment is not applicable on crew members who are actively serving on ships or to a person leaving India to serve onboard a ship
Impact of COVID Pandemic
The CBDT excluded the period of forced stay in India from 22 March 2020 to 31 March 2020 in computing residential status in India for FY 2019 -20 .
The CBDT had recently issued a circular providing clarifications on the residential status of individual for FY 2020- 21 wherein it is re-iterated that the provisions of the Act read with the DTAA mitigates the possibility of double taxation in spite of the situations arising on account of COVID. However, where an individual is of the opinion that a specific income may be subject to tax in more than one jurisdiction by virtue of residency, he can file Form NR within 31 March 2021 with details such as nature of income subject to double taxation, reason for the same etc.
An Overview of the above provisions in case of an Indian citizen going outside India as crew member on a ship
|Total income other than from Foreign sources (a)||Minimum no of stays in India to be considered as ‘Resident’ (b)||Whether liable to tax in any other country? (c)||Residential status if stay is less than no of days in column (b)|
|Less than INR 15 lakhs||182 days||Yes||Non - Resident|
|Less than INR 15 lakhs||182 days||No||Non - Resident|
|More than INR 15 lakhs||182 days||Yes||Non - Resident|
|More than INR 15 lakhs||182 days||No||Resident but not ordinarily resident|
Taxability of salary earned
The salary earned by a resident seafarer will be taxable in India as per the provisions of the Income Tax. No special exemptions for seafarers are available.
The salary earned by a non – resident seafarer will not be subject to tax in India. Further, as per Circular No. 13/2017, salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the said salary has been credited in NRE account maintained with an Indian bank by the seafarer.