Income Tax rules and ITR filing for Indian Seafarers/Merchant Navy Staff

The income tax regulations pertaining to seafarers and merchant navy personnel are not distinct from those applicable to other individuals. Determining residential status and assessing income tax for seafarers and merchant navy personnel follows the same guidelines as for any other taxpayer. However, it’s crucial to ascertain when these individuals are considered residents or non-residents according to income tax laws, and when their income becomes taxable or non-taxable.

Given that seafarers and merchant navy officers typically spend a significant portion of their time aboard vessels or ships, understanding their residential status is important before examining the tax implications. The residential status determines whether income earned, whether within or outside India, is subject to taxation. Generally, any income, regardless of its origin, earned by an Indian resident is taxable in India. Conversely, if a seafarer or merchant navy officer is classified as a non-resident, income earned outside India is not taxable in India.

Let’s take a closer look at these tax rules for sailors and navy workers.Top of Form

Residential status of Seafarers and Merchant Nacy

To figure out if a crew member is a resident or non-resident, we need to see how many days they spend outside India. According to Section 6 of the Income Tax Act, if a seafarer or merchant navy personnel spends 182 days or more in India during the financial year, they become a resident of India. There is one condition they need to meet to check their residential status.

But hold on, there’s more to consider. If we only look at this situation, it’s possible that seafarers or merchant navy personnel, if they become non-residents, might not pay taxes in India or any other country. Essentially, they could end up not paying taxes anywhere. To prevent such scenarios, the Income Tax Act introduced a provision that deems a seafarer or merchant navy personnel as a resident but not an ordinary resident in India.

According to the revised residency rule, if a person’s stay in India is less than 182 days but exceeds 120 days, they will be considered a resident and not ordinary resident. However, there’s an additional condition: if their income earned in India exceeds Rs. 15 lakhs, the 120-day rule applies. Conversely, if their income from India is less than Rs. 15 lakhs, the 182-day rule should be considered. Typically, most seafarers or merchant navy personnel do not earn more than Rs. 15 lakhs in India, so the 182-day rule applies to them, and they become non-residents if their stay outside India exceeds 182 days.

Now, it’s crucial to know how to calculate the time spent in India and outside India. To do this, we look at entries in the passport and Continuous Discharge Certificate for the dates of arrival and departure. However, for crew members, there’s a specific rule called Rule 126 that helps determine their period of stay in India or outside India. We’re including the details of Rule 126 here for easy reference for seafarers and merchant navy personnel to avoid further searching.

[Computation of period of stay in India in certain cases.

126. (1) For the purposes of clause (1) of section 6, in case of an individual, being a citizen of India and a member of the crew of a ship, the period or periods of stay in India shall, in respect of an eligible voyage, not include the period computed in accordance with sub-rule (2).

(2) The period referred to in sub-rule (1) shall be the period beginning on the date entered into the Continuous Discharge Certificate in respect of joining the ship by the said individual for the eligible voyage and ending on the date entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such voyage.

Explanation : For the purposes of this rule,—

For an Indian citizen serving as a crew member departing from India, the duration of stay in India shall not be counted towards the period specified in Rule 126. According to Rule 126, the period of stay in India for crew members will be exempted from calculation, starting from the date noted in the Continuous Discharge Certificate upon joining the ship for the eligible voyage, until the date noted in the same certificate upon signing off from the ship after completing the voyage.

The Continuous Discharge Certificate (CDC) serves as both a Continuous Discharge Certificate and a Seafarer’s Identity Document. A CDC issued under these regulations remains valid for ten years and can be renewed upon expiry or within six months before the expiry date. The renewal can extend its validity for another ten years at a time, provided the holder is an active seaman and their CDC has not been canceled, withdrawn, or suspended under these regulations. This is outlined in the Merchant Shipping (Continuous Discharge Certificate-cum-Seafarer’s Identity Document) Rules of 2001.

Income tax on Resident Seafarer and Merchant Navy

Income earned by seafarers and merchant navy workers in India, if they are residents, is subject to taxation in India, and they need to report this income by filing an income tax return. There aren’t any specific exemptions given to resident seafarers and merchant navy workers, but they can claim deductions under sections 80C, 80D, 80G, 80GG, and any other deductions available to resident taxpayers.

Income tax on Non-Resident Seafarer and Merchant Navy

Income earned outside India by non-resident seafarers and merchant navy personnel is not taxable in India. This is because they are considered non-residents during the financial year, so any income they earn outside India remains tax-free in India. In simple terms, income earned by seafarers or merchant navy personnel is tax-free if earned outside India while they are non-residents.

CBDT Circular No 13/2017 for the Seafarer

The circular issued by the CBDT clarifies that income earned by non-resident seafarers is not taxable in India if it’s earned while serving on a foreign ship outside India, and the salary is credited to an NRE bank account in India. This can be summarized in points:

1. The individual is a non-resident seafarer.
2. They provide their services on a foreign ship outside India.
3. Their salary is credited to an NRE bank account in India.

If all of these conditions are met, the seafarer’s income will be exempted from taxation. This provides significant relief to seafarers and helps in avoiding numerous litigations.

ITR Filing for Seafarer or Merchant Nacy Staff

While it’s not obligatory for non-resident seafarers to file their Income Tax Returns (ITR), it’s advisable to do so. Filing ITR serves as proof of your income and could be beneficial when applying for personal loans, education loans, home loans, and so forth. Sometimes, filing ITR for seafarers becomes necessary simply to avoid receiving income tax notices.

Benefits of filing ITR for Seafarers or Merchant Navy Staff

Filing Income Tax Returns (ITR) offers several benefits for seafarers or merchant navy personnel:

1. Income Proof: ITR serves as official documentation of your income, which can be essential for various financial transactions, including visa applications, loan approvals, and property purchases.
2. Loan Eligibility: Having a filed ITR can enhance your eligibility for loans such as personal loans, education loans, and home loans, as it demonstrates your financial stability and repayment capacity to lenders.
3. Visa Processing: Many countries require proof of income for visa applications. Filing ITR provides evidence of your income, facilitating smoother visa processing, especially for travel or work-related purposes.
4. Insurance Coverage: Some insurance policies may require proof of income for coverage. Filing ITR ensures that you have the necessary documentation to avail of insurance benefits or coverage.
5. Tax Refunds: If taxes were deducted at source or if you’ve paid taxes in excess of your actual liability, filing ITR enables you to claim refunds, ensuring that you receive any owed money back from the government.
6. Avoiding Notices: Regularly filing ITR helps in avoiding income tax notices or scrutiny from tax authorities, minimizing the risk of penalties or audits.

Overall, filing ITR is not just a legal requirement but also a beneficial practice for seafarers and merchant navy personnel, offering financial security, compliance, and access to various financial opportunities.

Related Judgement for Seafarer:

1. Salary credited in NRE a/c of NR seafarer is not taxable just because assessee had mistakenly shown it in ITR

• It would be useful to refer to the case of Tarun Kumar Sarkar 84 taxmann.com 91 (Kolkata – Trib.), wherein the ITAT held that where foreign employer directly credited salary for services rendered outside India into NRE bank account of non-resident seafarer in India, same could not be brought to tax ITA Nos.50&51/Rjt/2018 Shri Vinodkumar Hiralal Raja vs. ITO & 01 other Asst.Year -2006-07 in India in terms of section 5 of the Act. The ITAT observed as below, while passing the order:

“It is found that the impugned issue has been duly addressed by the CBDT Circular No. 13/2017, dated 11-4-2017 as rightly relied upon by the assessee.[Para 11] A perusal of the Circular referred to above shows that salary accrued to a non- resident seafarer for services rendered outside India on a foreign going ship (with Indian flag or foreign flag) shall not be included in the total income merely because the said salary has been credited in the NREaccount maintained with an Indian bank by the seafarer. Remittances of salary into NREAccount maintained with an Indian Bank by a seafarer could be of two types : (i) Employer directly crediting salary to the NRE Account maintained with an Indian Bank by the seafarer ; (ii) Employer directly crediting salary to the account maintained outside India by the seafarer and the seafarer transferring such money to NRE account maintained by him in India. The latter remittance would be outside the purview of provisions of section 5(2)(a), as what is remitted is not ‘salary income’ but a mere transfer of assessee’s fund from one bank account to another which does not give rise to ‘Income’. It is not clear as to whether the expression ‘merely because’ used in the Circular refers to the former type of remittance or the latter.