I am a seafarer and have stayed in India for roughly 135 days and worked on an Indian-flag ship for the remaining period (approximately 230 days) in the last financial year. I receive my salary in NRE (non-resident external) account. In the last financial year, I sold some part of my ancestral land that was lying vacant for ₹77 lakh. The buyer had deducted tax at source while making the payment. Will my income, which usually comprises salary and interest income, be taxed because of the land sale during the year?
—Name withheld on request
Being a seafarer, there are certain concessions granted to you for determination of tax residence in India under the Income Tax Act, 1961 (ITA). Since you have left Indian territory as a crew member on an Indian-flag ship, you have to cross the threshold of 182 days or more stay in India in order to qualify as a tax resident of India. In your case, since you have stayed in India for only 135 days during the previous financial year, you will not satisfy this test and accordingly you will not become a resident under the normal provisions which determine tax residence on the basis of period of stay in India.
However, the ITA has been amended since FY 2020-21 to provide for a deemed residence test. Under this test, even if you qualify as a non-resident (by taking into consideration that your period of stay in India is below the threshold of 182 days), you could still become a tax resident of India if you are not liable to tax in any other country and that you have Indian income exceeding ₹15 lakh for the particular financial year in question. In your case, apart from the fact that do not qualify as a resident based on your period of stay in India, ordinarily you would not become a tax resident of any other country since you were working on-board the ship for rest of the period when you were not present in India. Further, assuming that the capital gains income (after considering indexation) from sale of land exceeds ₹15 lakh, you will become a deemed tax resident of India under this additional test.
For persons becoming deemed tax resident of India, incomes which accrue outside India (barring some) are not taxable in India. Therefore, your salary earned from exercise of employment in international waters would not be taxable in India. Further, the Central Board of Direct Taxes (CBDT) has issued clarifications through specific circulars that mere credit of salary to NRE account would not make it taxable in India. However, since your ancestral land was situated in India, capital gains earned by you on its sale would remain taxable in India.
Harshal Bhuta is partner at P.R. Bhuta & Co. Chartered Accountants.
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Published: 06 May 2024, 05:54 PM IST