Taxation Guide for Merchant Navy Seafarers

Merchant Navy, or Seafarers as we call them, forms an important community. However, there is much confusion over their residential status, which, in turn, prevents them from making investment decisions. So, let us try to understand and construct an Investments & Taxation Guide for Merchant Navy Seafarers in detail.

Let us start with Taxation aspect first. We all know taxation starts from knowing if a person a Resident or Non Resident Indian in the last financial year. We can check this in details here.

Ironically, Income Tax Act of India, 1961, does not explicitly recognise the terms “seafarer” or “merchant navy”. There are no exclusive provisions within the Act that address the merchant mariner taxes and exemptions. Hence, the general income tax rules that apply to ordinary Indian citizens apply to seafarers as well.

The taxation of Indian citizens, whether seafarers, merchant navy workers, or others, is contingent upon their residential status, which can be determined by the duration of their stay in India during the given financial year.
Taxation Guide for Merchant Navy

Is Merchant Navy Sailor or Seafarer an NRI?

Section 6 of the Income Tax Act classifies taxpayers into three distinct categories based on their residential status – Resident and Ordinary Residents (RORs), Non-Resident Indians (NRIs), and Resident but not Ordinary Residents (RNORs). Below are the criteria for classifying the tax residency status of an individual:

Resident and Ordinary Resident (ROR) Seafarers

A seafarer is deemed a Resident and Ordinary Resident (ROR) of India if they satisfy any of the following conditions:

• They must have spent at least 182 days in India during the given financial year. They must have spent at least 60 days during the preceding financial year and at least 365 days during the immediately preceding four financial years in India.
• Those with an annual taxable income of more than ₹15 lakhs must have spent at least 120 days in India during the preceding financial year.

For ROR seafarers, their income in India and abroad is taxable under the Income Tax Act. Furthermore, any additional income while working on a ship is also taxable in India. They can even claim tax deductions and exemptions available to ordinary Indian residents under various sections of the Income Tax Act.

A Merchant Navy Sailor or Seafarer can qualify as a Non-Resident Indian (NRI) if they stay outside India for more than 182 days during the financial year due to their employment.

The Ministry of Finance has granted income tax exemption to Indian seafarers who sail aboard foreign ships for more than 182 days a year. This decision was made to support the Maritime Agenda 2020, which aims to increase the global share of Indian seafarers.

The exemption applies to income received in Non-Resident External (NRE) accounts maintained with Indian banks. This rule aims to encourage seafarers to maintain their financial earnings in India without facing tax liabilities, thereby promoting financial stability and growth for seafarers.

The Continuous Discharge Certificate (CDC) or passport is used to determine this status.

As per the Income Tax Act, NRIs are only taxed on the income earned or received in India.

To claim NRI status, seafarers need to ensure that their stay outside India exceeds 182 days during the financial year. Key documents needed include:

• Continuous Discharge Certificate (CDC): Proof of employment and duration spent at sea.
• Passport: Stamps and travel records to verify days spent outside India.
• Bank Statements: To show deposits in NRE accounts if applicable.

What is a CDC (Continuous Discharge Certificate)?

A CDC is an official document issued to seafarers, detailing their employment history, duration of voyages, and ports visited. It serves as proof of their seafaring duties and is essential for Taxation Guide for Merchant Navy and immigration purposes.

Benefits of Being an NRI Status Seafarer

1. Tax-Free Income: Salary earned outside India by an NRI seafarer is exempt from Indian income tax. The overseas salary of a non-resident seafarer is not taxed in India.

1. NRE Accounts: NRIs can open Non-Resident External (NRE) accounts, allowing tax-free repatriation of overseas earnings.
2. Investment Opportunities: NRIs have access to various investment options with certain tax benefits.

How is Income Taxed for a Merchant Navy Sailor or Seafarer?

• Resident Seafarer: Income earned worldwide is taxable in India.
• Non-Resident Seafarer: Salary earned outside India is not taxed in India, but income received in India (e.g., rental income, interest from savings) is taxable.

Other Income: Any income earned in India, such as bank interest or capital gains, is taxable.

Should a Seafarer File Income Tax Returns?

Although non-resident seafarers are not required to file income tax returns in India if their income outside India is not taxable, it is advisable to file returns. Non-resident seafarers must file income tax returns if their total income exceeds Rs 2.5 lakhs before deductions from Indian Sources like Rent or Pension in India.

Filing returns can aid in obtaining loans, and visas, and maintaining financial records.

This was the basic Taxation Guide for Merchant Navy. You may contact me over email for more details.

How Can a Merchant Navy Sailor Invest?

Seafarers have several investment options:

1. NRE Accounts: They can open both – NRE Savings & NRE FDs. Depositing overseas income without tax implications.

2. They can also open NRO, and FCNR(B) accounts.
3. Mutual Funds: Both, lumpsum & Systematic Investment Plans (SIPs) for regular investments.

1. Stock Market: Direct investment or through mutual funds.
2. Real Estate: Property investments, both in India and abroad.

How to Manage Your Investments & Financials While Sailing

1. Online Banking: Utilize online banking and investment platforms to manage finances remotely.
2. Financial Advisor: Consult a financial advisor for personalized investment advice.
3. Regular Monitoring: Keep track of investments and financials regularly, even while at sea.
4. Diversification: Diversify investments to mitigate risks.

The Indian government has introduced new tax rules to help seafarers working on Indian-flagged ships qualify for non-resident status. Previously, seafarers on Indian ships faced difficulties meeting the 182-day criteria due to frequent port calls in India.

The new rules allow the calculation of days spent outside India based on the Continuous Discharge Certificate (CDC), including time spent in Indian coastal waters. This change aims to retain seafarers on Indian ships by providing them the same tax benefits as those on foreign ships.