What's your income tax and service tax status as an Indian seafarer?

Before you read further and before I proceed further, it is important to point out that this is by way of my understanding of a very complex subject drawn basis my research, and is in no way supposed to be an advisory or comment or guidance. PLEASE do consult your own tax advisor under all circumstances. I am not a professional tax person and this does not claim to be anything other than my views, issued without guarantee. This was the fine print.


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As a seafarer, when was the last time you looked closely at the TDS (Tax Deducted at Source) Certificate given to you by the shipowner, agent or shipmanagement company> Broadly, this could have been:-


# A Form 16 - which makes you, in aspects, an "employee" earning an "income" from the company or entity issuing you the Form 16. As per a variety of laws, rules and more, the said employer MUST also adhere to issues like leave wages, Employee Provident Fund Organisation (EPFO) adherences, Articles of Agreement while onboard ship if applicable, the MUI or IMB or similar agreement on perquisites, Income Tax Act and the various aspects thereof. No need, however, of worrying about Service Tax here - as of now, and to my best understanding, when working on Indian flag ships.


For those claining tax exemption on NRI status, and having no Form 16 or 16A, this may be helpful too, towards a better understanding of Section 5(2) and related.


http://taxworry.com/is-salary-received-in-nre-account-in-india-for-services-rendered-outside-india-by-a-non-resident-taxable-in-india/


# A Form 16A - which makes you, for this purpose, a recipient of either a "fees for professional or technical services" or "payments to contractors and sub- contractors". And here, you are most increasingly over the last few years, going to be liable for charging service tax to the company that made these payments to you.


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So, what's Service Tax in India all about, then?


Here are the FAQs on service tax:-


http://www.servicetax.gov.in/faq-29sept11.pdf


Q:- "Who is liable to pay service tax?
Ans:- Normally, the "person‟ who provides the taxable service on receipt of service charges is responsible for paying the Service Tax to the Government (Sec.68 (1) of the Act). However, in the following situations, the receiver of the Services is responsible for the payment of Service tax : (1) Where taxable services are provided by foreign service providers with no establishment in India , the recipient of such services in India is liable to pay Service Tax.


Q:- Are seafarers exempted?
Ans:- NO.


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Now, what is the shipping industry in India, doing about this?


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As far as the Indian National Ship Owners Association (INSA) is concerned, this judgement pertaining to Service Tax referring to them may be of interest, and please note, obviously service tax will apply to resident Indians also.


http://taxworry.com/is-salary-received-in-nre-account-in-india-for-services-rendered-outside-india-by-a-non-resident-taxable-in-india/


http://www.servicetax.gov.in/st-cirmainpg.htm


(quote) 


""Sub: Applicability of service tax on taxable services provided by a non-resident or a person located outside India to a recipient in India-reg.


Kind attention is invited to instruction F No. 275/7/2010-CX8A, dated 30.6.2010, wherein the Board had communicated its view that services tax on a taxable service received in India, when provided by a non-resident/person located outside India, would be applicable on reverse charge basis with effect from 1.1.2005, and that the ratio of judgement in M/s Indian National Shipowners Association (INSA) case [2009 (13) STR 235 (Bom)] would not apply to such cases. Further, direction was issued to field formations to defend the levy of service tax on such services for the period on or after 1.1.2005, as post INSA judgment, it has been held by the High Courts/Tribunal in a large number of cases, applying ratio thereof, that service tax on such services is leviable only w.e.f. 18.4.2006. However, the appeals filed by the department before the Hon’ble Supreme Court, for defending the levy of service tax on such services w.e.f. 1.1.2005, have been dismissed recently (subsequent to the issuance of said instruction dated 30.6.2010) in the following cases.






(i) SLP (C) No. 29539 of 2010 in CCE Vs Bhandari Hosiery Exports Ltd


(ii) SLP (C)No. 18160 of 2010 in CST Vs Unitech Ltd


(iii) SLP (C) No. 34208/09 of 2010 in UOI Vs S R Batliboi & Co.


(iv) SLP (C)No. 328/332 of 2011 in UOI Vs Ernst & Young


(v) SLP (C) No. 25687-25688/2011 in CCE Vs Needle Industries


(vi) SLP (C) No. 25689-25690/2011 in UOI Vs SKM Engg Products






Further, Review Petition No. 1686 of 2011 filed in the case of Bhandari Hosiery has also been dismissed by the Hon’ble Supreme Court vide order dated 18/8/2011.






2. In view of the aforementioned judgments of the Hon’ble Supreme Court, the service tax liability on any taxable service provided by a non resident or a person located outside India, to a recipient in India, would arise w.e.f. 18.4.2006, i.e., the date of enactment of section 66A of the Finance Act, 1994. The Board has accepted this position. Accordingly, the instruction F No. 275/7/2010-CX8A, dated 30.6.2010 stands rescinded.






3. Appropriate action may please be taken accordingly in the pending disputes.


Yours faithfully,










(G. D. Lohani)


Director (Legal)


Copy for information to:


(i) Member (Budget)/Member (ST)


(ii) Joint Secretary (TRU-II)/Commissioner (ST)-CBEC"" 


(unquote)


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Please consult your rax advisor and PLEASE get opinions in writing. If your ship-owner company or ship-manager company or any of the multiple via medias in between say something else, then please take it in writing too.


AND please note:- dual "agreements" of the sort that are being used on Indian ships are just adding to your liabilities. Please be careful about those, also.


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EPFO and the Indian Seafarer - a perspective (and opening gambit - service tax)

Some of us may recall the big scandal with the Seaman's Provident Fund, which had vanished as part of the even bigger Home Trade scam, some slight details of which are here:-

http://www.dnaindia.com/mumbai/report_sailors-get-back-their-lost-pf_1067316

This was, in value terms, amongst the top 10 scams - considering that the Bofors scam was about all of about 25-40 crores. Ofcourse, scam levels have gone up now, and just one small builder EPFO scam in Delhi (kashyaps) has a figure of about 170 crores to it.

As far as Indian seafarers working on Indian or foreign flag ships are concerned, the matter is now moving up rapidly, and exemption granted to shipping companies and shipmanagement companies as a special case under the Seaman's Provident Fund Act and Amendment is being looked into. In any case, it is not possible that a "special" act for Indian seafarers should provide lesser provident fund for Indian seafarers!!

More on that later, there are many angles to it, including the definition of the word "employer", but here's an article I wrote on EPFO issues which might be of interest. As Indian seafarers, you may wish to ask your employer, too, about this.

http://moneylife.in/article/your-epfo-savings-could-be-at-risk-unless-you-secure-some-important-aspects-yourself/18329.html

The bigger issue here is this - for many Indian seafarers working on Indian or even foreign flag ships on contractual basis, the issue of service tax to be levied by the contractor (seafarer) on the shipping company / shipmanager, is being looked at. So, in other words, if you are working on "contract" wages, then be aware that you may be liable to charge service tax. Please do check with your tax consultant here, too.

And the question to our friends at DGS, soon in the form of an RTI, will be this:- how is the Seaman's Provident Fund giving lower returns than the Employees Provident Fund Organisation (EPFO)? The whole concept of an "exempted" category under the various Acts and Rules underlines the simple fact that a "special" provident fund will provide better returns than the "normal' EPFO.

Big question, that. If you look at the answer carefully, then Indian seafarers, whether on Indian flag or foreign flag, are served far better by being covered under the EPFO - just like any other "international worker". More on that soon, too . . .