Ushma & Associates
Seafarer/Merchant Navy Officer Income Tax Filing
Seafarers are individuals working on waterborne vessels like ships, primarily involved in navigation, operations, or maintenance under contractual employment.
How Is Income Tax Filing Different for Seafarers in India?
The taxability for seafarers, like all individuals, depends on their residential status as per the Income Tax Act, 1961:
- Resident & Ordinary Resident (ROR): If a seafarer stays in India for 182 days or more in a financial year, their global income is taxable in India.
- Non-Resident (NR): If their stay in India is less than 182 days, their income earned outside India, including ship income, is not taxable in India.
- Not Ordinary Resident (NOR): In some cases, a seafarer may qualify as an NOR, where their global income may still be exempt under certain conditions.
Impact of the New 120-Day Rule
Budget 2020 introduced the 120-day rule, which applies to Indian citizens with taxable income exceeding ₹15 lakh in India (excluding ship income). Key points:
- If a seafarer’s taxable income in India is less than ₹15 lakh, the 182-day rule still applies.
- For those exceeding ₹15 lakh, the 120-day rule may classify them as Resident but likely as NOR, keeping their ship income still exempt.
CBDT Circular 13/2017: A Game-Changer
As per this circular, income earned by seafarers on a foreign ship and deposited into an NRE account is considered received outside India and hence, exempt from Indian taxation. Ensure your salary is credited to your NRE account to claim this benefit.
Calculating Days Outside India (Rule 126)
The Continuous Discharge Certificate (CDC) determines the stay period. The calculation excludes days between sign-on and sign-off dates during an eligible voyage, ensuring precise residential status classification.
Bank accounts:
Seafarers fulfilling the conditions of Non-Residents shall maintain only NRO and NRE accounts in India.
Why File an ITR Even If Exempt?
Filing your ITR is crucial, even if your income is exempt, as it acts as a record for financial transactions, helps in visa or loan applications, and ensures you’re prepared for any future queries from the tax authorities. Salary earned on a foreign ship and deposited into an NRE account shall be shown under exempt income. Similarly, interest earned on NRE accounts is exempt under Section 10(4)(ii), it should also be reported as exempt income in the tax return. Regarding additional income sources like capital gains, rental income, or dividends from investments in India, these are taxable and must be declared in your Income Tax Return under respective heads.
Maintaining records
Ensure all supporting documents like bank statements, investment summaries, and CDC details are in order. Maintaining records are very important as claiming huge exemptions in ITR can invite enquiries from income tax department in future.