Tax Regime for Indian Seafarers: Income Tax Guide, 2020

Seafarer - Taxscan

June 25, 2020, is the Day of the Seafarer, an annual and international event day coordinated by the International Maritime Organisation (IMO). Last year’s Day of the Seafarer celebrated seafarers and recognized the unique contribution made by seafarers from all over the world to international seaborne trade, the world economy, and civil society as a whole, with the theme ‘Seafarers Matter’. This year the World Maritime theme is “Sustainable Shipping for a Sustainable Planet”.

A sailor, seaman, mariner or a seafarer is a person who navigates water bone vessels or assists as a crew member in their operation and maintenance.

Seafarer holds a variety of ranks and professions, each of which carries unique responsibilities that are integral to the successful operation of an ocean-going vessel. A common deck crew for a ship includes Captain / Master, Chief Officer/ Chief mate, Second officer/ Second mate, Able seaman, Ordinary seaman, Deck cadets, etc. A common engine crew will include Chief Engineer, 2nd Engineer, 3rd Engineer, 4th Engineer (optional), Engine Cadet, Fitter, Motorman, Oiler, etc. Other than this saloon staff will comprise Chief Cook and General Stewart but the number and rank of crew members serving on a ship will vary according to the size of the vessel, trade area of the vessel, Minimum Safe Manning certificate, administration, etc.

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

As per Income Tax on Seafarer up to Financial Year 2019-20, the salary received by a resident seafarer will be taxable as per the laws of the Income-tax department. No special exemption is available.

As per Income Tax on Seafarer up to Financial Year 2019-20, the salary of a non-resident seafarer will not be included in the total taxable income of the seafarer.

A video cutting is going viral in Merchant Navy groups that the 184 days condition has been relaxed for the Financial Year 2019-20 due to Coronavirus which is not correct. The condition for 184 days is relaxed for the Companies in India which are required to have an Indian Director as per the Companies Act 2013 not in the Income Tax Act, 1961.

According to a special circular issued for Non-Resident Seafarer 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. This circular specifically clarifies that if the conditions such as Non-Resident seafarer, Service rendered outside India, Foreign Ship and Credited to NRE Bank account are met then the salary received will not be included in the total income of the individual.

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). As per this new section, an individual, being a citizen of India, having a total income, other than the income from foreign sources, exceeding fifteen lakh rupees during the previous year shall be deemed to be resident in India in that previous year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

At the same time, another amendment has been inserted in Section 6(6) to consider the individual covered under section 6(1) as a resident but not ordinarily resident.

The plain reading of this section suggests that all the non-resident seafarers are considered as resident Indians and their salary will be liable to tax as they are not paying tax in any other country. However, this is not the case.

To clarify the applicability of this new section 6(1A), CBDT has issued a clarification via press release on 02 Feb 2020. As per this clarification, Section 6(1A) is an anti-abuse provision to cover those Indian citizens who shift their stay in low or no tax jurisdiction to avoid payment of tax in India. The new provision is not intended to cover those Indian citizens who are bonafide workers in other countries like in the Middle East as they are not liable to tax in these countries. Moreover, it is clarified that in case of an Indian citizen who becomes deemed resident of India under Section 6(1A), the income earned outside India by him shall not be taxed in India unless it is derived from an Indian business or profession.

So, the new section does not impact the taxability of salary receipt by seafarers and they will enjoy the benefit of tax-free salary as they have currently even they become resident but not ordinarily resident as per new Section 6(1A).

Also, false news is circulated in various places that a seafarer is required to complete 8 months onboard to save tax on their merchant navy receipt which is not correct. This provision is applicable to the person who is visiting India, not for a person who is leaving India for the purpose of employment.

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