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.

Seafarers and Merchant Navy Officers often have a different tax situation from individuals working entirely in India. Their employment may involve long periods outside India, salary received from a foreign employer or shipping company, foreign bank accounts, and income connected with India. As a result, income tax filing requires careful consideration of residential status, the source and nature of income, the period of stay in India and the applicable tax provisions for the relevant year.

Resident & Ordinary Resident (ROR): If a seafarer satisfies the applicable conditions for being a resident and ordinarily resident, their global income may be taxable in India.
Non-Resident (NR): A seafarer who qualifies as a non-resident is generally taxable in India on income received, deemed to be received, accrued or arising, or deemed to accrue or arise in India, subject to the applicable provisions.
Resident but Not Ordinarily Resident (RNOR): In specific cases, a seafarer may qualify as RNOR, where certain global income remains outside the scope of Indian taxation subject to the applicable provisions.

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, subject to the applicable conditions.
If a seafarer’s Indian taxable income exceeds ₹15 lakh, the 120-day rule may apply and the individual may be classified as a Resident but Not Ordinarily Resident (RNOR), subject to the prescribed conditions.

The individual’s residential status should be determined after considering the applicable stay requirements, income conditions and other prescribed criteria for the relevant financial year.

Taxability of Seafarer Salary

The taxability of salary earned by a seafarer depends on several factors, including residential status, where the services are performed, the source of income and the applicable provisions for the relevant year.

Salary received from a foreign employer or for services performed outside India should not automatically be treated as taxable or non-taxable merely because it is received outside India. The relevant facts and tax provisions need to be examined before determining the correct tax treatment.

For non-residents, income that is received, deemed to be received, accrues or arises, or is deemed to accrue or arise in India may be taxable in India, subject to the applicable provisions.

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.

The tax treatment should, however, be considered based on the individual’s residential status, nature of employment, place where services are performed, source of income and the applicable provisions for the relevant year.

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.

For seafarers, travel records and continuous periods spent outside India can therefore become important while determining residential status. Passport and travel details, CDC records and relevant voyage information should be maintained carefully.

Other Income to Be Considered

Apart from salary, seafarers may have other sources of income that need to be reported in their Income Tax Return. These may include:

Interest from Indian bank accounts
Interest from NRE, NRO or other eligible accounts, depending on the individual’s status and applicable provisions
Rental income from property in India
Capital gains from the sale of shares, securities or property
Dividend income
Income from investments or other sources
Foreign income and assets, wherever reporting is applicable

Each source should be reviewed separately to determine its taxability and reporting requirements.

Bank Account Guidelines

Seafarers classified as Non-Residents (NR) should maintain only NRO and NRE accounts in India, subject to applicable FEMA and RBI requirements.

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:

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, wherever applicable.
Interest earned on NRE accounts is exempt under Section 10(4)(ii), subject to the applicable conditions.
Additional income from capital gains, rent, or dividends from India is taxable and must be reported under the appropriate tax heads.

Filing the correct ITR is also important for claiming eligible refunds, carrying forward eligible losses, reporting applicable foreign income or assets, and maintaining an accurate tax record.

ITR Filing for Seafarers

The appropriate Income Tax Return form depends on the individual’s sources of income and other applicable conditions. A seafarer may need to file ITR-1, ITR-2 or ITR-3, depending on factors such as salary, capital gains, business or professional income and other sources.

For individuals having foreign income or foreign assets, the applicable ITR form and reporting requirements should be carefully reviewed. The correct form should be selected based on the actual income profile rather than simply using the form used in previous years.

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.

Other relevant records such as passport and travel details, salary statements, Form 16 where applicable, AIS, TIS, TDS certificates, capital-gain details, property-related documents and details of tax paid in India or abroad should also be maintained, wherever applicable.

How Can NRI CA Services Assist Seafarers?

NRI CA Services provides Income Tax Return Filing Services for Seafarers and Merchant Navy Officers in India, covering the key aspects of their tax compliance. Assistance can include residential-status determination, review of days spent in India, analysis of salary and other income, ITR form selection, reconciliation of TDS and tax information, review of Indian and foreign income, capital gains, eligible deductions and applicable tax requirements.

If you are a Seafarer or Merchant Navy Officer looking for assistance with income tax filing in India, NRI CA Services can help you manage the filing process based on your income, residential status and individual tax requirements.