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TOPIC: Ambiguity in Personal Income tax guidelines for Indian Seafarers? Confusion among Indian Sailors

Indian seafarers should correctly file their return to get tax exemptions. 03 Aug 2016 11:26 #4613

I got below clarification by Tax authorities as been passed on to me in whatsapp group of sailors club( Courtsey: Capt. B.K.Banerjee)

Dear Sirs,Good Day,

We thank you for taking up this issue on our behalf, with the authorities.

After following the contents of the Tax Tribunal rulings as being circulated in various media and having spoken to one of the affected Assesses in Kolkata, please present the below points to our Legal Team, who may find it appropriate and consider it as an argument in our favour, with the authorities, as well as appraise our members of the requirements.

aa. Exemption of Salary Income earned in Foreign Currency is applicable if the Individual Assesses maintains NRI or RNOR status for the relevant Assessment Year. 

bb. The Section 5(2)(a) of the IT Act was applied unfairly in one case as the ITO considered imposing Tax Liability on the Foreign Salary of Seafarer purely 'on receipt' basis without considering 'place of accrual outside India' as given in the explanations of No. 1 & No. 2 applicable to this section.

///// QUOTE ///////

Section 5(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-residentincludes all income from whatever source derived which—

(a)  is received or is deemed to be received in India in such year by or on behalf of such person ; or

(b)  accrues or arises or isdeemed to accrue or arise to him in India during such year.

Explanation 1.—Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.

Explanation 2.—For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.

///// UNQUOTE /////

cc. The complications in one of the cases came up as the Assessee himself declared his Foreign earned Salary Income under the heads of 'Foreign Assets and Income' in ITR2 and then failed to provide the details of DTAA or Tax paid elsewhere. Most of our Seafarers do not come under the preview of DTAA or FATCA (as we are NOT Tax-Resident in any other Country outside of India), so the submission under this head of Income should be avoided, if Salary in Foreign currency is the only earning, which is an exempted from Tax and thus reported only under the head/sheet of 'Exempt Income' in the ITR2.

-- This individual and his Tax Consultant have corrected this error in their subsequent years ITR filing and have been allowed the exemption on the Foreign Currency Salary Income by the ITO. 

dd. The contention of ITO or the Tribunal that every Income must be Taxed in some country or the other, to avoid the section 5(2)(a) from being redundant, please note that under Section 10(1) - the entire amount of Agricultural Income is Exempt Income for Residents and Non-Residents. So Section 5(2)(a) does co-exists with Section 10(1), under the same I. Tax Act.

ee. Also, as per Section 10(4)(ii): "in the case of an individual, any income by way of interest on moneys standing to his credit in a Non-Resident (External) Account in any bank in India in accordance with the Foreign Exchange Management Act, 1999 (42 of 1999), and the rules made there under" is allowed as Income exempt of I tax. 

Thus the I Tax Act has no issues to allow exemption on NRE Fixed Deposits and NRE Savings Account Interest earnings (though these are accrued and earned in India), as long as the NRI or RNOR status is maintained by the Individual.

ff. So, our Seafarers need to know that their Foreign Currency Salary is earned and accrued on board the ship (outside the territory of India) and they are fully in their rights and have the option to get their full wages on board, every month. It is only for the convenience of the Seafarer and the Company (and to avoid the Security Risk of carrying large sums of money in Currency Notes in person) the arrangement and facility of making monthly allotments, Free of charge, has been provided for in our CBAs. This available convenience or practice does not change the nature or place of earning/accrual of the Salary from 'Outside India' to "In India". This is what needs to be clarified and enforced.

For our Seafarers, for the sake of establishing a record that they can and they did get paid the Salary on board, while still being outside of India, to the extent they wished for (thus the right, option and control was with the Seafarer at every stage once the monthly Wages was earned), they must take some amount of Cash on board, as Cash advance or Final Wages payment before Sign-off. This will off-set the ill-conceived notion of the Tax Authorities that the Seafarer has no access/rights or options to receive his Salary on board, before it is received in some Bank Account in India.

In one of the cases, it appears that the entire Salary amount was received by way of Allotments only (maybe due to the individual working on off-shore vessels) which allowed the Tribunal to establish the view that the Seafarer could not get paid any Salary in hard currency on the high-seas as he did not have the right or access to his earning till it was received in his Bank Account in India, thus, it was ruled that the amounts were accrued and received IN INDIA only.

The Income Tax Law and Rules are still the same as before and still allowing the exemptions that were available to the Seafarers on their Foreign Currency salary earnings, but a few Individuals in some Income Tax Wards/Circles are applying the rules in a very selective manner. This must be nipped in the bud, as being rightly done through your petition and we support the action of MUI and NUSI in this regard to resolve the issue and get the clarification as necessary.

Hope the above is of some help in pursuing the matter.

There may be large number of members submitting their support for the petition, some of which may not be reaching you, as the mail-box may be full and unable to receive further submissions.

Thank you,

With Regards

Capt. B. K. Banerjee, AFNI

MUI No: N-011003
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Meeting of Indian Seafarers with DGS 11 Aug 2016 17:06 #4621

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Pls be advised that there was a meeting at DG shipping’s office on 10th of Aug 2016. The IT matter was discussed in length with DG, Joint DG and other dignitaries from DG’s Office.

The organizations which attended the meeting were FOSMA/MASSA/INSA/NUSI/MUI.

The brief of the discussion is -

AA) As per IT rule, any income earned by an Indian directly into his account while he is serving abroad is taxable, even if he is with NRI status.
BB) It is Tax Free, If the amount is deposited to individual’s account outside India and transferred to his account in India, because he is following tax rules of that country he is employed in. This is not applicable to seaman, as he is not paying tax in any country.
CC) One of the member from a responsible organization suggests to bring a stay on this issue, before it affects seamen.
DD) NUSI Representative informed that the unions have appointed a strong attorney to study the entire matter and give a right direction in favour of shipping community.
EE) DG Shipping has suggested to shipping organizations and unions to come out with a strong joint letter which will sensitize Finance ministry.

Conclusion – The matter is taken up very seriously by entire shipping society, and expecting a fruitful outcome in everyone’s favour.
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