Big Tax Impact For Seafarers

Union Budget 2020 drew sharp reactions after two significant changes in the Income Tax Act affecting NRIs.

This provision raised anxiety in minds of seafarers and the people who are working in the Gulf region where countries don’t tax on their earned income.

1. Earlier, an Indian needed to stay at least 182 days abroad to be
categorized as an NRI which has now been increased to 240 days. This clause is not applicable to seafarers – they will remain non-resident on their stay of 182 days out of India.

2. In another significant change, an NRI who is a citizen of India and
does not pay tax anywhere (would include most Indian seafarers) will now be taxed in India

The second clause could be a killer. This clause could mean that most
seafarers could end up paying Income Tax on their global income, at rates
same as those for resident Indians.

Finance Minister Clarifies: No Worry For Seafarers

The government on Sunday clarified that the proposed tax on NRIs will not
apply on bonafide Indians working in tax-free foreign countries and is
intended to tax only those seeking to escape tax by exploiting their
non-resident status.

First Sitharaman clarified that only Indian income of NRIs is proposed to be taxed under the new provision, and later the tax department issued a
statement to say that “the new provision is not intended to include in tax net those Indian citizens who are bonafide workers in other countries”.

Revenue Secretary Ajay Bhushan Pandey also said that Indians working in the Middle East, as well as those in Merchant Navy, will not be taxed using the new provision.

“Somebody who is a citizen of India and sitting in a tax haven and not
paying taxes then he has to pay tax,” he said. “By issuing a clarification, we
have kept them (workers in the Middle East) out.

Same for merchant navy because their income is also arising out of India.”

Asked if raising the duration of overseas stay to qualify for NRI status
would not deter Indians from making visits home, he said: “These are
anti-abuse provisions. If someone faces any difficulty because of this, we
will see what can be done. The policy that you make, you have to see that a
larger section of people is benefited because of this. If he is a non-resident, he has to live substantially out of India.

Now, substantially out of India means what? Earlier it was 50:50. Now we have made 2/3rd: 1/3rd.”

Pandey said the new provision was brought in because people were taking advantage of the existing one. “These are the anti-abuse provisions, and not to inconvenience any genuine persons.”

One can however be resident, not ordinary if one has been non-resident for at least 7 out of 10 prior years. If a person is resident, not ordinary then
his foreign source income does not get taxed in India.

Revenue Secretary Ajay Bhushan Pandey said while addressing a press
conference that some people stay in different countries for a certain number of days but are not residents of any one of those. “So if any Indian citizen is not a resident of any country in the world, he will be deemed to be a resident of India and his worldwide income will be taxed,” said Pandey.

But from all indications, for seafarers, the maximum period of stay in India
in order to qualify for NRI status in a given year, continues to be 182
days.

So don’t worry about the income tax and we will update you if more clarifications will come from the Finance Ministry.

Source: Internet