Merchant Navy Workers Taxation in India

Merchant navy workers, also known as seafarers, mariners, and sailors, are skilled professionals responsible for operating and maintaining waterborne vessels that can be used for various purposes, including commercial trades, tourism, and national security. Seafarers encompass individuals with diverse ranks and specialisations, working collaboratively to ensure the safe and efficient transportation of the vessel from one port to another.

Below are the common roles and responsibilities that come under the ambit of merchant navy workers:

1. Ship’s Deck Department

   A ship’s deck department includes the captain, the highest-ranked officer on board, who is responsible for the overall safety and navigation of the vessel. They make critical decisions, manage the crew, and ensure compliance with maritime laws.

   Then, there are navigational officers and deck cadets. They include a Chief Officer and a Second Officer and are responsible for handling navigation, communication, and safety protocols. They work closely with the captain to chart courses, avoid hazards, and maintain accurate records.

2. Engine Department

   The engine department of a ship includes a Chief Engineer, who is the head of the engine department and is responsible for the vessel’s propulsion system and overall engine performance.

   Then, there are engineering officers and engine cadets who oversee the operation and maintenance of the vessel’s machinery, ensuring it operates smoothly and safely. They include Second and Third Engineers, Motorman, Fitter, Oiler, etc.

3. Catering Department

   The catering department of a ship is responsible for the well-being of the crew and passengers onboard by ensuring timely and quality meals. This department typically includes a chief cook and a General Steward.

However, the precise number and ranks of seafarers serving on a ship may vary as per the size, nature, and trade area of the vessel.

To begin with, the Income Tax Act of India, 1961, does not explicitly recognise the terms “seafarer” or “merchant navy”. It means that 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.

Typically, 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.

Consequently, a seafarer’s tax¹ liability is also determined based on whether they are classified as resident Indians or Non-Resident Indians (NRIs).

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 tax¹ deductions and exemptions available to ordinary Indian residents under various sections of the Income Tax Act.

Non-Resident Indian (NRI) Seafarer

Seafarers who are Indian citizens but do not meet any of the conditions for ordinary residents mentioned above are considered Non-Resident Indian (NRI) seafarers. In such cases, their income from foreign sources, including any additional income from services rendered on a foreign ship, is not taxable in India.

However, the income made by NRI seafarers in India is taxable as per Section 195 of the Income Tax Act. Furthermore, the CBDT circular of April 2017 states that they must receive this income in a Non-Resident External (NRE) or a Non-Resident Ordinary (NRO) bank account.

Not Ordinary Resident (NOR) Seafarers

Occasionally, seafarers become Indian residents due to their stay in India exceeding 182 days. However, despite their extended stay, they can still be classified as Non-Ordinary Residents (NORs) based on their preceding years’ records. In such cases too, their income from foreign sources, including any additional income from services rendered on a foreign ship, is not taxable in India.

The income of merchant navy workers can be broadly classified into two categories – the Indian income and the foreign income. The merchant navy taxation rates may vary as per the different income types.

• Taxation of Indian Income

  For the Indian income of merchant navy workers, the taxation rules align with the general taxation principles applicable to ordinary Indian residents. It means that their income is subject to tax¹ based on the relevant income tax slab rate after various deductions and exemptions.

  The key components of Indian income for merchant navy workers may include salary, rent, interest, and various other sources.

  However, the applicable income tax rates may vary for NRI seafarers falling under the Double Tax Avoidance Agreements (DTAAs). These are treaties signed between India and various other countries to protect NRIs from paying taxes on the same income twice, in India as well as in their resident country.

• Taxation of Foreign Income

  Taxation of income earned on the other side of international borders is taxable in India for ROR seafarers. However, in the case of NRI or NOR seafarers, their foreign income is not taxable in India. Careful consideration and professional advice are essential to navigate these intricacies.

As mentioned, ROR merchant navy workers can avail of various tax1 deductions and exemptions available to other resident Indians. These include:

• If a seafarer is residing in a rented apartment and receives a House Rent Allowance (HRA) as a part of their salary, it can be claimed as a tax deduction under section 10 (13A) of the Income Tax Act.

• Under section 10 (26), any income earned by a seafarer for services rendered outside India can be claimed as tax exemption.

• If a seafarer is receiving a Nautical Miles Allowance (NMA) from their employer, it can be claimed as a tax deduction under section 10 (14).

• Various tax deductions are available under sections 80C, 80D, and 80G against the investments made by seafarers in eligible instruments. These include life and health insurance policies, charitable donations, the National Pension Scheme (NPS), and the Public Provident Fund (PPF), among others.

• Seafarers can claim a standard deduction on a certain percentage of their salary (usually up to 30%) to cover employment-related expenses.