27-07-2016

Is it fair to tax salary of seamen earned while on seas?

Seamen

A big issue during the last few years of the UPA government was the huge demands raised by a target crazy Income Tax Department. The main sufferers were the corporates. The current finance minister (then in the opposition) even coined the word “tax terrorism” and the BJP pledged to change that on coming into power.

There have been some positive changes in the attitude of the tax department since the party came to power but if you ask any professional who interacts with the tax department, he will tell you that nothing much has changed on the ground. In fact, driven by the impossible to achieve targets, the tax department is also targeting the goose that lays golden eggs – namely the NRI population. The same NRI population whose remittances have assisted India through our tough times are now being targeted by the income tax department.

Let me state the facts. There are many people serving on commercial ships that sail in international waters. They lead a rather hard life spending about 7-8 months every year onboard the ships and hence are treated as non-resident Indians. Their salaries are paid in dollars by their foreign employers. Although they are non-resident Indians, they normally have no base outside India and hence, ask their employers to remit this money to their NRE accounts in India. Remember, they have a choice to ask their employers to remit this money anywhere in the world but still they choose to get the money to their Indian bank account. There are a large number of shippies (as they are colloquially called) and though figures are difficult to compile, rough estimates suggest that it can be around Rs 6-7 thousand crore. An income tax officer saw an opportunity to fulfill his revenue targets by taxing these remittances on the ground that though these salaries are earned overseas they are taxable in India because these are “received” in India. Some cases in the past have been decided against the tax department. However, one of these cases was decided on June 1, 2016, in the Kolkata tribunal in the case of Tapas Kumar Bandopadhyay v/s Deputy Director of Income-tax (I.T.A No.70/Kol/2016 Assessment Year: 2010-11) in favour of the tax department.

At the risk of simplifying a rather complex case let me state that one of the main factors that weighed with the court was that if this income was not taxed in India – it would escape tax altogether as no other country has taxed it.

Unfortunately, nowhere was it bought out that even India would not have been able to tax it if the tax payer had asked his employer to remit the money to his bank account in Dubai or Singapore instead of getting it remitted to his home country. After all, a shippie cannot be expected to be conversant with the technical aspects of the income tax law and this was a practice that had been going on for decades without any issues. With this case being decided in favour of the tax department several notices are reported to have gone out to other shippies. And the issue is not restricted to shippies alone. There are many NRIs who work in foreign countries where a part of their salary is paid in US dollars which is remitted to their NRE bank accounts in India. They are also at risk of being asked to pay tax on these incomes not only for this year but also for the past many years.

Obviously, there is technical merit in the tax department’s case (after all the court has decided in its favour) but it is common sense that salaries earned abroad should not be taxed in India just because it is directly brought to India. If the law can be interpreted otherwise, the law should be changed – and this time retrospectively in favour of the tax payers.

Source: DNA

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