952. Clarification regarding liability to income-tax in India and deduction of tax at source of members of the crew of foreign going Indian ship

1. A person resident in India in any year is liable to pay tax in India on his global income. A non-resident, on the other hand, is charged to tax in India only on income which is received or is deemed to be received in India or which accrues or arises or is deemed to accrue or arise to him in India. Thus, in the case of a non-resident, income which accrues or arises outside India and is also received outside India is not subjected to tax in India.

2. After the amendment made in section 6 of the Income-tax Act, 1961 by the Finance Act, 1990, w.e.f. 1-4-1990, an Indian citizen who is a member of the crew of an Indian ship as defined in clause (18 ) of section 3 of the Merchant Shipping Act, 1958 is regarded as a resident in India only if he is in India for 182 days or more during the relevant year irrespective of the extent of his stay in India in earlier years. For this purpose, it is necessary to note that the term "India" as defined in section 2(25A) of the Income-tax Act, 1961 does not extend to Indian ships operating beyond Indian territorial waters. However, if he is outside India and comes on a visit to India in any year, and leaves India otherwise than as a member of the crew of an Indian ship he will be regarded as a resident in India if his stay in India during that year is for 150 days or more if during the 4 years preceding that year he has been in India for 365 days or more.

3. Thus, generally, Indian members of the crew of a foreign-going Indian ship would be non-resident in India if they are on board such ship outside the territorial waters of India for 182 days or more during any year. Accordingly, such seamen will be charged to tax in India only in respect of earnings received in India or the earnings for the period when they are working within the Indian waters on coastal ships, etc.

4. Under section 192 of the Income-tax Act, persons responsible for paying salary and other incomes chargeable under Income-tax Act under the head "Salaries" are required to deduct income-tax from such income at the time of payment. For this purpose, the amount of tax to be deducted is computed at the average rate of income-tax arrived at by applying the rates in force for the financial year in which the payment is made on the estimated income of the person to whom salary is paid. Since, as explained above, in the case of members of crew of foreign-going Indian ships, who are not likely to be in India for a period or periods exceeding 182 days in a year, income which accrues or arises outside India and is also received outside India is not liable to tax in India, the shipping companies and other persons responsi­ble for paying salary to such members of crew may take these factors into account while computing the amount to be deducted as tax and deduct only so much of tax as would be chargeable on the estimated income liable to tax in India. If the shipping company or other person responsible for paying to such members of crew subsequently finds that any person who was earlier considered as not likely to be resident in India and deduction of tax at source was made on that basis is now likely to be resident in India, the shipping company or the other person responsible for making the payment, may increase the deduction so as to adjust any deficien­cy arising out of an earlier short deduction or non-deduction during the same financial year.

Circular: No. 586, dated 28-11-1990.