The Central Board of Direct Taxes (CBDT) recently issued a circular clarifying that the salary of a non-resident seafarer on account of services rendered outside India in a foreign ship is not taxable in India merely for the reason that the salary has been deposited in the NRE account. The new circular is issued in the light of representations received by the Board seeking clarification on the taxability of non-resident seafarers. It is stated in the circular that “the matter has been examined in the Board Section 5(2)(a) of the Income Tax Act provides that only such income of a non-resident shall be subjected to tax in India that is either received or is deemed to be received in India. It is hereby clarified that salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian Bank by the seafarer.” Last year, the Calcutta High Court, in the case of Utanka Roy v. DIT, International transaction, Transfer pricing, held that salary of an Indian citizen, working in a foreign ship &rendered services outside India for a period of 286 days is exempt from taxation under section 5(2) of the Income Tax Act, 1961.
Who is Non Resident Seafarer?
In Case of Sailing on Foreign ships: Indian crew serving on foreign ships for 182 days or more are treated as non-resident in India, irrespective of where the ship trades (including Indian waters).
In case of sailing on Indian ships : A seafarer serving on Indian ships outside India for a period of 182 days or more in a year is considered to be a non-resident. However, the time spent by a ship in Indian territorial waters is considered as period of service in India, according to tax rules framed in 1990. The number of days outside India of Indian crew working on such Indian ships gets counted only from the date when the Indian ship crosses the coastal boundaries of India.