The Union Budget of India for the year 2015-16 has revitalized the Indian shipping and ports sector, paving the way for corporatization of major port trusts and bringing a much awaited tax relief for Indian Seafarers and Sailors.
The Shipping Ministry along with various Seafarer welfare organizations and Associations has been, for the past couple of years, pushing for rectification of the anomaly for Indian Seafarers who are put at a tax disadvantage vis-a-vis their Sailors sailing in global flags.
On 28 February, presenting the BJP Government’s second budget, the Finance Minister ArunJaitley ended a more than two-decade-old seafarers’ taxation anomaly that is cited by Indian fleet-owners as the main reason for an acute shortage of sailors to man their ships.
To elaborate, anIndian Seafarer serving on ships outside India for a period of 182 days or more in a year is considered to be a non-resident for Income Tax purposes.
However, the time spent by a ship in Indian territorial waters is considered as period of service in India, according to Income Tax Rules framed in 1990.
Since, Indian flags frequent Indian ports due to their nature of business, most of the Crew on Indian Flags face difficulties in maintaining and complying with the 182 days criteria for getting a Non-Resident status for Tax purpose.
For example, if there is an Indian flag vessel for international trade, say Australia (Coal), the Vessel goes overseas to Australia to fetch Coal and returns back to Indian ports for the offloading. During the course of this journey the Vessel will possibly pass through various Indian ports in Kerala, Goa, Maharashtra and Gujarat and spend a considerable amount of time in the Indian territorial waters before moving onto the International waters.
In this case, the number of days outside India of crew on such ships gets counted only from the date when the ship crosses the coastal boundaries of India. Hence even if the Indian sailor spent more than 6 months on such an Indian Flag vessel, his NRI days will be counted only for the days that the vessel was in International waters and the days sailing in Indian territorial waters will be considered to be as if he has been resident in India.
However, if the sailor is doing the same route on a Foreign Flag vessel, irrespective of the fact that it was in Indian or Foreign waters, his number of days in Indian waters is also considered to be as if he is NOT resident in India and hence he will not pay any Tax in India.
The financial effect of this anomaly makes the income earned on the Indian vessel Taxable and the foreign vessel tax free. Hence if a Sailor aboard a Foreign Vessel is earning Rs 30,00,000 for the year (Tax Free) then his Indian counterpart will be actually be earning Rs 30,00,000 – 9,00,000 = Rs 21,00,000 as Rs 9,00,000 will be deducted or be payable as Income Tax(gross figures for example only).
This led to a continuous drift of personnel from Indian ships to foreign flag ships under the lure of higher “take home” pay packets, without having to pay tax in India, where the income tax rate is higher, due to this unintended differential tax treatment.
As a result, Indian flag ships that are by law required to hire only Indian crew, faced an acute shortage of experienced manpower, particularly in the officers’ category. The problem of this drift is compounded with the actual CTC (cost to company) and the perquisites on offer to the Sailor are much high with Foreign Flags.
The budget 2015 has hence taken note as follows: “In the case of foreign bound ships, where the destination of the voyage is outside India, there is uncertainty with regard to the manner and basis of determination of the period of stay in India for crew members of such ships who are Indian citizens,” according to the budget documents. “In view of this, it is proposed to amend the Act to provide that in the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed,” the documents said.
India providedmore than 50000 fresh Seafarers and close to 45000 officers in 2014, according to the Manpower Update 2010-2014. However, according to the DG of Shipping, nearly three-fourths of Indian Seafarers are employed with foreign shipping organizations.
The amendment gives powers to CBDT to prescribe the manner and procedure for computing period of stay in India. This would be effective retrospectively from April 1, 2015, so the benefit can possibly be drawn from the next financial year onwards.