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Friday, 21 October 2011

Taxation and the Indian seafarer - NCV, FG, NRI - impact India and elsewhere . . .

While the plight of the Indian seafarer is slowly but steadily becoming one of the more important subjects on this medium, along with the subject of maritime fatigue and the larger effect it has on seafaring as a career option, another subject which draws the numbers is taxation.

This article written by me, almost a year ago, still draws in regular readership as well as questions:-

Aimed more at the NRI seafarer, spending 6 months or more at sea on foreign or Indian flag, there is still nothing new on the subject of how the new Direct Tax Code will impact the Indian seafarer seeking NRI status. At the same time, great movement in the world on international taxation and especially in context with the tax havens where shipping companies are often registered, is bringing major changes. And the Indian seafarer is not going to be immune from these vital changes.

So a word of caution - as a resident or an NRI seafarer working on foreign or Indian flag ships, the requirements to be fulfilled by the Indian seafarer were mainly as per Indian laws. This will change soon, has been changing, and very soon compliances of flag state of vessel, flag country of management company, flag country of vessel owner, and flag country of beneficiary owner, will also in many ways impact the status of the seafarer working onboard a ship.

To give two examples:-

1) You could be a resident of anywhere in India, but if your shipowner or shipmanager was from Maharashtra, then sure as day follows night, a deduction for Maharashtra State Professional Tax will be made in your accounts - especially if your articles, agreement and other documents were signed on a Mumbai address. (Whether the shipmanager or owner actually remitted that money to the Maharashtra Government or not is another question altogether . . .) It does not matter if the vessel was registered in Mumbai or Mongolia, you will pay a few hundred rupees every month.

2) The 'front" or even the beneficiary owner of your ship could be an entity whose eventual citizenship or domain is in any of the developed countries, after passing through one Flag of Convenience address and maybe one or two tax haven addresses, but eventually, the owners are individuals or corporates based somewhere. Their taxation adherences and evasions are increasingly being passed on to their custodians, employees, agents - and have you, especially as a Master, read about your liabilities lately? Not just pollution related . . .


It is a very serious matter, this business of signing two or more contracts as a seafarer. Apparently, it has become the norm, especially on Indian ships, to sign one lower figure for the official Government articles and another higher figure as a separate agreement nullifying the first to some extent. And after showing it to friends in the IRS, their considered opinion is that it is a very dangerous matter, and needs to be investigated further.

Situation being like this:- what happens when the taxman uses the second agreement, loads it with all kinds of demands basis perceived income when in reality you may not even have been paid, and then presents you with a demand? Leave aside the sheer illegality of making a seafarer work on two separate agreements which is for the DGS to look into - where in the MSA does it say that an Indian seafarer on an Indian flag ship or otherwise has to sign two agreements?

To start with, and this needs to be implemented by all shipowners and management companies immediately, there should be only one agreement for one seafarer working on one ship. And that is the articles. If union wages are low, which they are, and a higher wage or salary has to be paid, which is often the case, then so be it - let the higher wages be reflected on the articles. There is no rule that prohibits this.

And you, as an individual seafarer, have everything possible to lose by signing two separate agreements for one job. Another view the income tax department can take is that you were actually due to get paid both amounts, so now sit and explain why you got paid only one, meanwhile please deposit . . . yes, it can happen.


So here's a brief primer on the latest taxation scenario for seafarers working onships with all sorts of possible documents, and getting paid by legitimate means.

1) Are you an "employee" as defined by the company hiring you? In which case, you need to be on their rolls, get TDS deducted as an "employee", have EPFO subscriptions or equivalents and in general, satisfy the conditions applicable to other employees in the same company. That's a given. Yes, I know, the ship-owner and the ship-manager will convince you otherwise, but.

Since most seafarers on floating staff basis are not shown as employees by the shipping company or shipmanagement company, they don't realise it, but they as far as taxation is concerned end up being shown in the company's books as "consultants".

So now, it seems that you are a consultant, an Indian person in an Indian company, so what are your liabilities from the income tax point of view?

1) Nature of income as a consultant is classified as income from profit and gains of business. So now you start claiming deductions of expenses and depreciation while calculating the taxable income, which you can not, as an employee. Works fine, till the Income Tax authorities can ask you - where else were you a consultant. Nowhere else? Uh-oh, this can be classifed as income. Pay tax, no deductions for expenses and depreciations.

2) Books of accounts. Especially if you were claiming to be a "consultant" as an engineer. And remember, once you cross 15 lakhs, then all become mandatory.

3) Advance Tax. Ouch, forgot that one, almost?

And finally, very soon, expect all "consultancies" to come within the ambit of "service tax" too, which is not under Income Tax but Excise Department.


Indian seafarers working in Indian companies are supposed to be under the protection of the Directorate General of Shipping, who are supposed to be looking after their welfare, not sending them into deeper trouble.

The root of this problem is the issue of dual (or even more) agreements between seafarer and shipowner/shipmanager. This has to be brought to an end right away.

And Indian seafarers working on Indian ships need to be employees, with proper tax adherences and the full protection that goes with it.

That's step-1 in improving matters for Indian shipping. Otherwise, if the shipowner and shipmanager couldn't care less about the people on board their ships, then the rest is somuch hot air.


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