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Fight for Justice: The (Tax) Voice of the Indian Seafarer (Part 1)

Posted on October 01 2020

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Is there a change in Tax Law. Do we need to pay Income Tax?

This is one of the primary subjects, on which we have been getting anxious calls on, for the past one month.

The Mr T K Bandopadhyay ITAT (Income Tax) ruling has ruffled quite a few feathers among the NRI community and the Seafarer community in particular; and thanks to Social Media, this has gone viral with the Seafarer community as well as the Tax Department.

First, please accept my apologies for not providing the details and specs earlier, as me and our Team as we were tied up with Tax compliance for the 31 July deadline and a few other issues, and I wanted to provide a comprehensive article to you after personally meeting/speaking to stake holders.

I will take an opportunity, to explain the issue in as simple words as possible, without using tax jargons, for better understanding and lesser grapevine. As there are various parts to the issue, for a better understanding of the situation, I will provide the explanation in smaller parts:

Part 1: Quick Snapshot of the Issue

Part 2: What is the Case all About and the Counter Arguments – Technical Write Up

Part 3: What should you do

Part 1: Quick Snapshot of the Issue

1. Don’t Panic: This is nothing new. This issue has been there since long, and we have been advising Seafarers/Clients to take caution, as far as possible, on this issue over the past decade.

2. The issue: The ITAT Ruling in the Mr T K Bandopadhyay case is NOT a new Law. It is a case, where the Income Tax Officers and the 2 member ITAT has taken a stand that there should be Tax applied on the Seafarer even after maintaining his NRI Status. There have been similar cases across the country in the past 5-10 years, hence it is nothing new. There are cases available by various ITAT which are in Favour as well as Against Seafarers. Hence, the rulings are contradictory. However, things at the Income Tax Department’s end have been warming up, towards an intent to interpret the law, towards taxing NRI’s and Seafarers.

3. The Law: The Law is a little unclear and contradictory, where the 2 aspects of law which are conflicting are as follows:

a. For an NRI/PIO (maintaining NRI Status) the Income earned Overseas is not liable to Tax in India.

v/s

b. For an NRI/PIO, Income earned or deemed to be earned in India or Received in India, is taxable in India.

4. Seafarers v/s NRI: Seafarers are NOT typical NRI’s and Seafarer Taxation is quite a little different, which I have been telling all our Clients and in Seminars over the past decade. Seafarers, are a special set of Indians, which qualify both the criteria; as normally most of you would have the NRI Status and you are earning overseas (Clause A is Satisfied); at the same time the Remittance is being sent to India by your Indian Manning Company or the Overseas Principals (Clause B is also Satisfied). Hence, how can the Law, NOT Tax you as well as Tax you. A complete Catch 20 situation.

5. Catch 20: This is the contradiction is Law which the Income Tax Officers have interpreted in the favour of the Tax Department. It is, however, not right to vilify the Income Tax Officers who have imposed the Tax, as they are merely doing their Job. Let me explain.

As a Seafarer you will be happy to accept Clause A (above) and to ignore Clause B, so that there is no tax implications on your earning. The Income Tax Officer and Department has happily accepted Clause B (above) and has ignored Clause A, so that there is a tax implications on your earnings.

I believe had you been in their shoes/chairs, you would have definitely done the same things. They are also have a job, they have a target to meet, they are answerable to their Seniors and they also have an Audit.

It is a fallacy of law which the Courts and Ministry will need to clarify. However, it would have been better, had the clarification been taken before taking the action and putting the entire community in trouble. But off-course, the Indian way of working is a little different, as we all know.

6. Keep the watch: Hence, the T K Bandopadhyay issue is a Case Law and NOT Law, which has been passed by a 2 member bench. I have personally met/spoken to few of the Stake Holders in the T K Bandopadhyay case, and I understand, groundwork is being prepared to challenge the judgement in higher Courts. It is very important for the Seafarer to stay calm and Fight for Justice and to put in all our might for the Case and many similar cases, for the well being of the NRI and Seafaring community.

7. Higher Courts: The Higher Courts will have 2 options:

a. either to uphold/agree to the ITAT Ruling, or

b. to reject the ITAT Judgement.

If the higher Court, reverses the Judgement, then we are back to being Tax Free and there will be no Income Tax Officer breathing down your neck henceforth.

However, if the Courts agree with the ITAT ruling, then Seafarers/NRI’s may be in a little trouble. However, the higher Court judgement then can be again challenged in the Supreme Court. The Supreme Court verdict will be final, enforceable and will have to be abided by the IT Department and the Seafarer.

8. Jai Ho: Hence, till the Court ruling is received, the issue is a little a limbo, with no clear cut direction and a little anxiety, for both the Seafarers as well as the Income Tax Officers. However, we need to live with the fact (till the time there is clear Judgements) that, as NRI/Seafarers, we will want to claim Tax Free Status and as ITO’s, the Tax Department will want to impose Tax. It is important for the Seafarer to stay calm and to Fight for Justice in case any of the Seafarers have been penalised by Tax authorities. The Fight may be long, but I believe it will be worth the Fight. I strongly believe, as fellow Seafarers, we are always ready for a Good Fight.

9. Get your House in Order: Meanwhile, this is a good time to get your house in order. Please get out of your Tax slumber and become an active participant in staying compliant. Most NRI/Seafarers I meet, have a relaxed notion of Tax in India. Which as per them, is Tax Free and NO Filing / Compliance required in India. I believe, this is a wake-up call, which was expected to come some-time. The IT Department has been closely looking into NRI segment from the past 5-7 years and we have been advising our Clients to stay absolutely compliant.

We need to understand, that as NRI/Seafarers, you have also been a little too lax with compliances:

a. not maintaining NRI Status regularly

b. not Filing Returns,

c. taking things for granted,

d. making investments in family members names

e. getting remittances in other accounts

and many more issues, which is better not mentioned here and which most of you are aware about.

Its time to get compliant. It takes less than 1 -2 hours to arrange the documents and you can do the Accounting and Fling of the Returns from anywhere in the World, (at least through my Team). Your physical presence in India is also not required for the Filing. Hence, making an excuse for not staying compliant is no more acceptable as you will be only fooling yourself.

3 important action points going forward:

ü Please maintain your NRI status, religiously.

ü Stop being creative in Tax and Accounting.

ü Save and Invest, wisely, in a Tax efficient manner.

ü Stay Neat and Clean in terms of Tax, Tax Compliance and Tax Filing.

10.Shipping Companies: I would also like to bring to your notice, that the Shipping (Owners and Manning) companies are also required to get compliant as there have been issues with their Accounts, Tax Payments and various other things, which directly affect the Seafarer.

Indian Flags: For example, the Seafarers (in Indian Flags) are issued Form 16 A and are hence treated as professionals, where the TDS is lower. So you get a happy Seafarer with a Tax Liability which he is not aware about. Not a great situation.

For example: A Seafarer in an Indian Flag, is earning Rs 100 and the Tax Liability is 30% say Rs 30.

Case 1: The Indian Company can do a TDS of Rs 30 and give Rs 70 to the Seafarer. Then there is no Tax liability in the Seafarer.

Case 2: The Indian Company does a TDS of Rs 10 and gives Rs 90 to the Seafarer. But the Tax liability of Rs 20 has been passed onto the Seafarer.

Many Seafarers are happy receiving Rs 90, but don’t realise that there is a Rs 20 tax liability and I believe many Seafarers will not be compliant with Taxes in this domain.

Foreign Flags: Most Foreign Flags are to provide Net of Taxes Salary/Wages to the Indian Seafarer, and off-course the Tax liability is to be borne by the Company, similar to the policies followed for the Western Seafaring counterparts. However, this tax is possibly not paid in any country.

There is also a practice where the Principal Ship-owner is, say in Dubai, for whom you are actually working for. The Wages are transferred from Dubai to the Indian manning Companies or to the Indian counterparts accounts and then the Wages are paid to you in India. This is done due to various reason of Profits and Benefits for the verticals involved in the Business. However, this can also have an impact on your Books and Taxes.

Conclusion: There are many more, issues as delved into briefly in the Bandopadhyay case, like DTAA, TRC etc, which is equally important (rather more important, as per me) which will be a little too technical for this forum. I will take it up some other time.

I have also seen various articles and messages, over sensitising the issue. These articles and posts are creating much more confusion, rather than providing solutions.

There have also been messages, which are being created and are going viral, which mention that Mr Bandopadhyay passed away due to a Heart Attack after receiving the Income Tax Notice. This is not correct, and in absolute bad taste and seems a little too insensitive for a fellow Seafarer.

We request you not to over sensitise the issue or spread rumours. Please speak to qualified people who are experience and knowledgeable in International Tax, NRI matters. Your Tax and Accounts are reasonable important part of your life, which you may be realising now (at least to a little extent) and it take 2 hours a year to Stay compliant. Please don’t make excuses.

I have been working with International Tax and Finance and NRI/Seafarers for more than 15 years and I have developed a very personal and Family relationship with most of my Clients.

It pains me with the fact, that, all of you are well read and well travelled, and you would understand the importance of Compliance better than many other Indians (keeping in mind the amount of Safety and Regulatory Compliance that you do while on sail). Hence, you very well understand, that if there is one gap, it can have a large impact. If you can risk your life and take the effort to be Complaint for your Ship and Ship-owners, I am sure you can set aside 2 hours a year for making yourself compliant.

I will put forward the other Parts of the Article soon. Please bear with me till then.

Please feel free to contact my Team and me for any queries or clarifications.

As far as the issue is concerned, may Justice prevail.

Fiat Justitia.

Mr Rohit is a veteran in International Tax and NRI Taxation. He has an experience spanning across decades in the field of International Tax, Finance, Banking and Trade and has worked with MNC’s and other Corporates across sectors. He can be contacts at rohit@TaxAssist.in.

For general queries and to sign up with us, please mail us at nri@TaxAssist.in or call us at +91 98307 56567.

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