Recently a verdict by Kolkata income tax tribunal against a marine engineer has changed the concepts about income tax charged from the seafarers. The verdict was really too much to bear by the entire merchant navy community in India. The tribunal had asked the marine engineer to deposit a huge amount of money as income tax, as per a demand raised by his assessing officer. At first, people considered it to be a rumor but people realized the authenticity of the news when Maritime Union of India and national Seafarers Union of India, jointly appealed to all Indian seafarers to raise their voice against the verdict of. Was this the reason which prompted Indian seafarer to get Income tax relief?
Indian seafarer to get Income tax relief -Decision of Kolkata High Court Overruled by CBDT Circular-
The Argument in favor of seafarer to get Income Tax Relief
- The seafarers work on board and not ashore in any country. Still, the registry of the ship determines that one should follow local laws in additions to the terms and the conditions already signed in the contract. The seaman book or CDC and the license of the country where the ship is, is very much important to carry other than the national license. After the contract is over, one has to return to his country of residence. When they are on board, they are technically the tax resident of the country for which the ship is sailing. It is irrespective of the fact that the person may be the resident of another country.
- That flag state can tax the seafarer’s income and if no double taxation avoidance agreement is signed with the country of existence, one has to pay taxes in that country as well. For ship’s crew, an Indian citizen who leaves his country in any previous year for the purpose of employment outside India or as a crew member of an Indian ship would be treated as a residence of India if he stays in India for 182 days or more. Conversely, if he stays in India for less than 182 days, he will be treated as a non-resident for that year and he will not be taxed for his foreign incomes. For Indian seafarer to get tax relief, one has to understand the laws well.
The Rule of Residence and Resident in India for Income to get taxed
As per section 5(2) (a) of the Income Tax Act, the total income of any previous year of a person who is a non-resident includes 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 is deemed to accrue or arise to him in India during such year.
So, the question is will the tribunals take a cue from this verdict and tax seafarers for all the previous years? To answer this question, we should know that Union Ministry of Finance has granted income tax exemption to all Indian seafarers sailing aboard foreign ships outside India for more than 182 days a year.
Through the Central Board of Direct taxes circular number 13/2017, it has been clarified that an Indian seafarer is to get tax relief if he receives his remuneration in NRE account maintained by an Indian bank.