Merchant Navy Taxation — Residential Status, Day Counting and Salary
The 182-day test, the CDC day count, salary credited to an NRE account and the Indian income that stays chargeable whatever your flag flies
A merchant navy officer can spend nine months of the year at sea, earn entirely in foreign currency from a foreign employer, and still be taxed in India on the whole of it. Or spend eight months at sea and pay nothing. The difference is a day count, and it is one of the few areas of Indian tax where the outcome turns almost entirely on arithmetic that the taxpayer controls.
That arithmetic is unforgiving. Cross the threshold by a single day and residential status flips, bringing worldwide income into charge. Seafarers who accept a contract extension late in the financial year, or who take extended leave at home after a long voyage, regularly discover the consequence when they file.
N D Savla & Associates advises merchant navy personnel on residential status, day counting from the continuous discharge certificate, the taxability of salary credited to Indian accounts, and the Indian-source income that remains chargeable regardless of status. We handle the return filing that follows and, where a status is questioned, the documentation needed to support it.
How Is a Seafarer’s Residential Status Determined?
Residential status under Indian tax law is a question of physical presence, not nationality, employer or where the salary is paid. An individual is resident in India in a financial year if present in India for 182 days or more in that year, or for 60 days or more in that year and 365 days or more in the four preceding years.
The second test is the one that would ordinarily catch seafarers, since 60 days at home between contracts is entirely normal. It does not apply to them. An Indian citizen who leaves India for the purposes of employment outside India is subject only to the 182-day test, with the 60-day condition substituted by 182 days. Employment on a foreign-going ship has consistently been accepted as employment outside India for this purpose.
The practical consequence is a single number. Present in India for 182 days or more means resident and worldwide income is taxable. Present for less means non-resident, and only Indian-source income is charged. Because the financial year has 365 days, being outside India for at least 184 days provides a working margin against a day counted differently.
| Status | Test | What is taxable in India |
|---|---|---|
| Non-resident | Present in India for less than 182 days | Income received in India, accruing in India, or deemed to accrue in India |
| Resident but not ordinarily resident | Resident, but non-resident in 9 of the 10 preceding years, or in India for 729 days or less in the 7 preceding years | Indian income, plus foreign income from a business controlled from India |
| Resident and ordinarily resident | Resident and not satisfying the RNOR conditions | Worldwide income |
| Deemed resident | Indian citizen, Indian income above ₹15 lakh, not liable to tax in any other country | Treated as RNOR; Indian income plus limited foreign income |
Is Salary Earned at Sea Taxable?
For a non-resident seafarer serving on a foreign-going ship, salary for services rendered outside India is outside the Indian charge. Two questions used to complicate this, and both have now been addressed.
Where the salary is credited
Income received in India is chargeable in India regardless of where it accrued. That created a genuine problem: a non-resident seafarer whose foreign employer credited salary directly to an Indian bank account appeared to be receiving income in India. The Central Board of Direct Taxes issued a circular in 2017 clarifying that salary accruing to a non-resident seafarer for services rendered outside India on a foreign-going ship is not taxable in India merely because it is credited to an NRE account maintained in India. Assessments raised on that basis were withdrawn.
Where the services are rendered
This remains the operative test. Salary for services rendered on a foreign-going ship outside Indian waters is foreign-source. Salary for services on an Indian ship in Indian coastal waters is Indian-source and taxable whatever the status. Where a vessel operates across both, an apportionment may be required and the voyage records become the evidence.
What remains taxable regardless of status
- Interest on NRO accounts and on resident savings or deposit accounts, subject to withholding
- Rental income from property situated in India
- Capital gains on the transfer of Indian assets, including property and securities — see capital gains
- Dividends from Indian companies
- Any business or professional income arising in India
Interest on an NRE account is exempt for a person who qualifies as a non-resident under the exchange control framework, which is a related but separate test from residential status under tax law. The two definitions can diverge, and the exemption depends on the exchange control status.
How Did the Law on Seafarer Taxation Develop?
The current position is the product of a long-running mismatch between how Indian tax law defines residence and how seafaring actually works.
The Income-tax Act, 1961 built residence on physical presence, with a primary test of 182 days and a secondary test bringing in individuals present for 60 days in the year and 365 days over four preceding years. The secondary test was aimed at people with an ongoing connection to India who spread their presence across years. Applied literally, it would have made almost every Indian seafarer resident, because 60 days of shore leave in a year is unremarkable.
The legislature recognised this early. An explanation was added substituting 182 days for the 60-day condition in the case of an Indian citizen who leaves India for the purposes of employment outside India. The provision was drafted for the wave of Indians taking employment in the Gulf and elsewhere from the 1970s onwards, and it applied equally to seafarers on foreign vessels. Its effect was to leave a single, manageable test.
That solved the residence question and left the receipt question open. Because income received in India is chargeable regardless of where it accrues, and because foreign shipping employers commonly remitted wages directly to Indian bank accounts, assessing officers began raising demands on seafarers whose salary was credited in India. The seafarers had rendered no services in India, held non-resident status, and were being taxed purely on the mechanics of where their employer chose to pay. Litigation followed through the 2000s and 2010s with mixed outcomes at tribunal level.
The Central Board of Direct Taxes resolved it administratively in 2017 with a circular confirming that salary accruing to a non-resident seafarer for services rendered outside India on a foreign-going ship is not chargeable in India merely because it is credited to an NRE account. It was a clarification rather than a change of law, but it ended a dispute that had affected a large number of individuals with no realistic means of contesting it.
The framework was then adjusted from a different direction. The Finance Act, 2020 reduced the presence threshold to 120 days for certain Indian citizens and persons of Indian origin visiting India with Indian income above ₹15 lakh, and introduced a deemed residence provision for Indian citizens with Indian income above that threshold who are not liable to tax in any other country. The target was individuals arranging their affairs to be tax resident nowhere. Seafarers with modest Indian income are unaffected, but those with substantial Indian rental or investment income now have a second test to satisfy rather than one.
The Income-tax Act, 2025, in force from 1 April 2026, recodified the residence and scope provisions with new numbering and replaced the previous year and assessment year concepts with a single Tax Year. The substantive tests — the day counts, the employment carve-out, the source rules — carried across unchanged.
How Should a Seafarer Manage Their Tax Position — Step by Step?
Track Days From 1 April, Not From March
Maintain a running count of days in India from the start of the financial year. Reconcile monthly against the continuous discharge certificate and passport stamps. Seafarers who begin counting in February have already lost the ability to do anything about the answer.
Count the Days Correctly and Consistently
Joining and signing-off dates on a foreign-going voyage are counted as days outside India in accepted practice. Days in India between contracts, including leave and any training ashore, are days in India. Apply the same convention throughout the year and record the basis, because an inconsistent count is what invites a challenge.
Plan Contracts and Leave Against the Threshold
Where a seafarer approaches 182 days in India, an extension of shore leave or a delayed joining can flip the status for the whole year. This is the one planning decision that materially changes the outcome, and it has to be taken during the year. Residential status advice taken in January is worth considerably more than the same advice in July.
Keep the Banking Structure Right
Salary should be credited to an NRE account rather than a resident savings account, and any resident account should be redesignated as NRO on becoming non-resident. Interest on NRE deposits is exempt while non-resident status under the exchange control rules holds; NRO interest is taxable and suffers withholding.
Assemble the Evidence Contemporaneously
Continuous discharge certificate entries, passport pages with immigration stamps, contracts of employment, vessel particulars showing foreign-going status, and wage account statements. This bundle is what supports the claimed status if it is examined, and reconstructing it years later from a shipping company that has changed hands is difficult.
Check the Deemed Residence Position
Where Indian-source income exceeds ₹15 lakh and the seafarer is not liable to tax in any other country, deemed residence can apply irrespective of the day count. Where it does, RNOR status generally follows, which limits the charge to Indian income and a narrow category of foreign income.
Identify All Indian-Source Income
Rent, NRO interest, dividends, capital gains and any business income remain chargeable regardless of status, and withholding will have been applied to several of them. Reconcile these against the Annual Information Statement at incometax.gov.in before concluding that nothing is taxable.
File Where Required, and Often Where Not
A return is required where Indian income exceeds the exemption limit, and is worth filing in any case to claim a refund of withholding, to establish the status on record, and to support loan or visa applications. Seafarer return filing has its own form selection and disclosure requirements.
Which Situations Need Particular Care?
The First Year and the Last Year at Sea
Joining the merchant navy mid-year, or coming ashore permanently, frequently produces a resident year with substantial foreign salary. For someone returning to India for good, returning Indian planning matters, because RNOR status can shield foreign income for a transitional period if the return is timed with it in mind.
Seafarers with Significant Indian Assets
Rental property, large deposits or an investment portfolio can push Indian income above the deemed residence threshold, and they generate chargeable income regardless of status. The day count alone does not settle the position for this group.
Coastal and Indian-Flag Service
Service on Indian ships in Indian waters produces Indian-source salary that is taxable irrespective of residential status. Seafarers moving between foreign-going and coastal assignments in the same year need the periods separated and the voyage records retained.
Seafarers Taxed Abroad
Some flag states or countries of employment impose their own tax. Where both India and another country charge the same income, double taxation relief under the applicable treaty or the unilateral provisions may be available — see our international tax services — and it requires evidence of the foreign tax actually paid.
Why Choose N D Savla & Associates
- We count the days with you during the year — the only useful time to advise a seafarer is while the year is running and the count can still be influenced
- The evidence file is built as you go — certificate entries, passport stamps, contracts and vessel particulars assembled contemporaneously are what sustain a claimed status
- Indian income is not overlooked — non-resident status does not exempt rent, NRO interest, dividends or capital gains
- We check the deemed residence position — the ₹15 lakh rule catches seafarers with substantial Indian assets, and it operates independently of the day count
- One team across status, filing and investments — residential status, banking structure, property, capital gains and the return interact
- Where the year turns on it, certificate applications and property advisory are handled by the same team
Frequently Asked Questions on Seafarer Taxation
How many days must a seafarer spend outside India to be a non-resident?
An Indian citizen who leaves India for the purposes of employment must be outside India for 182 days or more in the financial year to be non-resident — in other words, present in India for less than 182 days. The ordinary 60-day condition that applies to other individuals does not apply to a citizen leaving for employment, which is why the working number for seafarers is 182 rather than 60. Since a financial year has 365 days, the practical target is at least 184 days outside India, and most seafarers plan contracts with a margin rather than to the day.
Is salary credited to my NRE account taxable in India?
No, not merely because it was credited to an Indian bank account. A circular issued by the Central Board of Direct Taxes in 2017 clarified that salary accruing to a non-resident seafarer for services rendered outside India on a foreign-going ship is not taxable in India simply because it is received in an NRE account maintained in India. The point had been a genuine source of dispute, because income received in India is chargeable regardless of where it accrued. The circular settled it for seafarers on foreign-going ships.
How are days counted from the continuous discharge certificate?
The continuous discharge certificate records the dates of joining and signing off each vessel, and those entries are the primary evidence of days outside India. As a matter of accepted practice the date of joining and the date of signing off are both counted as days outside India for a foreign-going voyage. Days spent in India between contracts, including any leave, count as days in India. Passport immigration stamps should be reconciled against the certificate, because discrepancies between the two are the usual reason a claimed status is questioned.
Can I be treated as a resident even if I spend most of the year at sea?
Yes, in one specific situation. An Indian citizen whose total income from Indian sources exceeds ₹15 lakh in a financial year, and who is not liable to tax in any other country by reason of domicile or residence, is deemed to be resident in India. The provision was introduced to address stateless residence rather than to catch seafarers, and a seafarer with modest Indian income is unaffected. A seafarer with substantial Indian rental, interest or business income should check the position rather than assume the day count settles it.
Does a seafarer working on an Indian ship get the same treatment?
Not usually. The favourable treatment depends on services being rendered outside India on a foreign-going ship. Where a seafarer works on an Indian ship operating in Indian coastal waters, the services are rendered in India and the salary is taxable in India, whatever the residential status. Voyages that begin and end at Indian ports are the clearest case. Where a vessel operates partly within and partly outside Indian waters, the position depends on the facts and should be examined rather than assumed.
Get Your Status Right Before the Year Turns
Day counting during the year, banking structure kept correct, deemed residence checked, Indian-source income disclosed and the evidence file built as you go — not reconstructed on shore.
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