What would be residential status of person on board a Ship?,
What would be my total Income in India on which I am supposed to pay tax?
Whether I am supposed to file ITR?, If yes then which ITR form should I use?,
Whether TDS will be deducted? What would be treatment of those taxes deducted?
Whether I will get refund or need to pay some extra?
These are some frequently occurring questions in the thoughts of Indian Sailors (mariners). There is lot of ambiguity in this era and that is the reason why they are left with either non filing of ITRs or wrong filing of ITRs very often.
As there is season for ITR filings, the answer to these question would be very much relevant to them and hence this write-up is.
To determine the taxing status of any person in India the foremost important thing is to determine residential status. The charge of Income tax largely depends on residential status of any person supposed to be taxed and once the residential status is determined his income whether earned outside India or in India will be make liable to tax depending upon his or her residential status.
So far as Individuals are concerned they can be Either
- Resident in India or
- Resident but not ordinarily resident in India or
- Non-resident in India.
POS: Period of stay
The period of stay will be calculated on aggregate basis and it need not be in a continuous stretch.
For mariners, The period of stay is somehow typical to calculate as most of the time they remains to be in sea water. The water may be Indian costal water within Indian boundaries or international costal water. The ships on which they are on board may be India Flagship or may be foreign flagship. These all make it typical to calculate the period of stay of a mariner and thus the residential status too.
In case of seafarer, the period of stay in India will not include the period which start from the date stamped on their CDC as date of joining the ship and ends on the date entered in the CDC at the time of signing off.
However this exclusion is only in the case of Ships originating from any port in India and destined to any port outside India.
So if any seafarer is on board any ship (Either Indian Flagship or Foreign Flagship) which is either going outside India or coming in India then such period as mentioned in their CDC will not be taken for the purpose of computation of his or her stay in India.
Income Liable to Tax.
Once the residential status is determined following will be the income inclusion treatment;
- For residents, all income earned by him will be liable to tax in India, whether received, arises or accrues to him in India or outside India. However benefit of DTAA provisions (as applicable) is available here.
- For R&OR, all income received, accrues or arises to him in India will be taxable. Also any income received, accrues or arises to him outside India will be included in taxable income provided it is derived from any business or profession set-up India.
- For Non residents, all income received, accrues or arises to him in India will be taxable.
So for seafarers if during the year their job changes and due to that their residential status migrated from Non resident to Resident or R&OR then any salary income earned outside India will not be subject to tax in India.
For seafarers having non-resident status, as their salary is earned outside India in most of the cases, they are not made liable to pay tax in India on their salary Income.
Suppose a person being an individual works for a shipping company and is on board a ship. Now let consider different scenario and see the according tax treatment;
- He joins the ship on 01st of October 2018. The ship is foreign going ship (or coming to India from any foreign port).
His total POS in India will be (30+31+30+31+31+30) 183 days. Hence resident and his whole salary income earned throughout the year will be taxable.
- He joins the ship on 25th of September 2018. The ship is foreign going ship (or coming to India from any foreign port).
His total POS in India will be (30+31+30+31+31+24) 177 days. Hence non resident and his salary income for the period served in India will only be included in his total income and any salary earned on board a ship will be non-taxable in India.
- He joins the ship on 25th of September 2018. The ship is Indian flagship & roaming in Indian costal water itself.
His total POS in India will be 365 days as when the person was on board as ship then he was in India itself. Hence Resident and his salary income for the period served in India will be included in his total income. In this case the period when person was on board a ship is also the period served in India itself as the ship is not foreign going and also the service was rendered in India itself as the ship roams in Indian costal water only.
- He joins the ship on 25th of September 2018. When he joined the ship he was into some business and also he has some investments in the form of fixed deposits in Bank.
His total POS in India will be (30+31+30+31+31+24) 177 days.
Hence the residential status is non resident.
His total taxable income will include.
Business income till 24th of September 2018. However if business continues and income arises from there then such business income also earned throughout the year.
Interest income on fixed deposits. However here if the Fixed deposits are transferred to his NRE A/c then the interest can be kept outside the purview of tax. The balance in NRO A/c can be transferred to NRE A/c subject to 1 Million USD transfer limit.
Salary income will not be included as it is earned for the services rendered outside India and the residential status of individual is Non-Resident.
- The person is on board a ship and enjoys the status of non-resident since previous 10 years. He left the ship on 25th of September 2018 and joins some other job in India or starts some new business. Now his residential status and depending tax treatment would be as under.
Total POS in India: (6+31+30+31+31+28+31) 188 days.
Non-resident during preceding 09 years out of 10 previous years hence the status would be Resident but Ordinarily resident (R & OR).
The salary income or business income earned after 25th of September 2018 will be taxable.
The salary income earned on board a ship i.e. till 25th of September will not be taxable as earned outside India and Residential status is R&OR.
The interest income till the account is NRE, will be exempt and once it is converted into normal account interest income will be taxable.
- The person is on board a ship and doesn’t enjoys the status of non-resident since previous 10 years. He left the ship on 25th of September 2018 and joins some other job in India or starts some new business. Now his residential status and depending tax treatment would be as under.
He was non resident for 05 years out of preceding 10 years, but his total period of stay in India during preceding 07 years was less than 729 days.
The residential status would be of R&OR.
So the tax treatment would be same as mentioned in point “(e)” above
He was non resident for 05 years out of preceding 10 years and his total POS in India during preceding 10 years was also more than 729 days.
The residential status would be of Resident.
So, His entire income will be taxable income in India. The salary income earned while services were rendered on board a ship will also become part of taxable income due to residential status being Resident.
However if that salary income is subject to double taxation then Benefit of double taxation treaty (as applicable) can be availed.
Whether It is mandatory to file ITR or not
So far as provisions of Income Tax Act, 1961 are concerned, It doesn’t mandates the income tax return filing by any individual (Whether resident or non resident) till the time his total income exceed the limit (Maximum amount not chargeable to tax).
So, till the time taxable income is below than the limit i.e. Rs. 250000/- its not mandatory to file Return of Income.
And the taxable income will be derived as per principles outlined in the illustrations mentioned in point (a) to (f) above.
However return filing would be necessary in following circumstances;
- To get refund of taxes which was either deducted or collected in the form of TDS/TCS and there is no taxable income in India. This happens because there are certain transactions where TDS provisions become applicable despite total taxable income is below than the limit i.e. Rs. 250000/-
- To declare your exempt as well as non-exempt income both, So that once you become resident there are less chances of having notices from department once you enter into high value transactions with the money earned while being non-resident.
- To have a complete track of your income tax return so that once after being resident while concluding any financial transaction documentation can be handled in hassle free manner.
- If any immovable property is transferred and there are long term capital gains, but the tax liability was mitigated after opting out the investment methods as given in the law, then although there is no need to file ITR as per legal requirement, but to avoid notices from the department it is advisable to file return of Income.
- Any other circumstances, like credit card payment in excess of Rs. 200000/- during the year while his stay was in India, cash deposit in savings account for more than Rs. 1000000/- during the year etc., then also return filing is advisable to avoid any departmental notices in future.
- In normal and most of the cases ITR-2 will be used for return filing as the status would be of Non-Resident, But there may be circumstances where ITR-3 or ITR-4 will be used if there is any business income also.
However if the status is of resident then ITR-1 can also be used.The selection of ITR form will totally depend upon the residential status first and then nature of income being reported.
- If TDS was deducted or TCS was collected on any particular payment or in any particular transaction then obviously Refund will be claimed and received if there is nothing to offer to tax in India.
- If there is Interest income from Fixed deposits in NRO A/c, then the TDS will be deducted.
- If there is purchase of any Motor vehicle and the purchase price is more than Rs. 1000000/- then TCS will be collected @ 1% of total purchase price.
There are several other provisions in Income Tax law where TDS deduction or TCS collection is warranted despite being the fact that corresponding income will not be subject to tax In India.
These are some issues discussed in this write up. However I believe that there might be several other issues which remained untouched. So in case of any other queries write me at firstname.lastname@example.org
The author is a chartered Accountant in practice and can be reached at;