Income Tax Filing for Seafarers/Merchant Navy Officers

Seafarers work on vessels such as ships, handling navigation, operations, or maintenance under contractual agreements. Their income tax filing process in India differs based on their residential status under the Income Tax Act, 1961:

• Resident & Ordinary Resident (ROR): If a seafarer stays in India for 182 days or more during a financial year, their global income is taxable in India.
• Non-Resident (NR): If their stay in India is less than 182 days, their foreign income, including ship salary, is not taxable in India.
• Not Ordinarily Resident (NOR): In specific cases, a seafarer may qualify as NOR, where certain global income remains exempt under predefined conditions.

The 120-Day Rule and Its Impact

The Union Budget 2020 introduced a 120-day rule applicable to Indian citizens whose taxable Indian income (excluding ship salary) exceeds ₹15 lakh. Key points:

• If a seafarer’s Indian taxable income is below ₹15 lakh, the 182-day rule remains applicable.
• If a seafarer’s Indian taxable income exceeds ₹15 lakh, the 120-day rule may classify them as a Resident but likely as NOR, ensuring ship income remains exempt.

CBDT Circular 13/2017: Key Exemption

As per CBDT Circular 13/2017, salary earned on foreign ships and deposited into an NRE account is treated as received outside India, making it non-taxable in India. To avail of this benefit, ensure that your salary is credited to your NRE account.

Residential Status Calculation: Rule 126

A seafarer’s stay outside India is determined using their Continuous Discharge Certificate (CDC). The period between sign-on and sign-off dates on an eligible voyage is excluded from the stay calculation, ensuring accurate residential status classification.

Bank Account Guidelines

Seafarers classified as Non-Residents (NR) should maintain only NRO and NRE accounts in India.

Why File an ITR Even If Your Income Is Exempt?

Filing an Income Tax Return (ITR) is beneficial even if your income is exempt because:

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• It serves as a financial record for future transactions.
• It is useful for visa applications, loans, or financial planning.
• It ensures compliance and avoids unnecessary queries from tax authorities.
• Exempt salary from foreign ships credited to NRE accounts should be reported under Exempt Income in the ITR.
• Interest earned on NRE accounts is exempt under Section 10(4)(ii) but must be disclosed in the ITR.
• Additional income from capital gains, rent, or dividends from India is taxable and must be reported under the appropriate tax heads.

Importance of Record Maintenance

Maintaining bank statements, CDC details, and investment summaries is crucial. Large exemptions in ITRs may attract scrutiny from the Income Tax Department, making proper documentation essential.