I have been working in merchant navy for five years. Every year, the high seas voyage amounts to about six-seven months. However, during FY24, due to my marriage, I could not serve for long and the period of voyage was only about five months. What will happen to the salary that I have received in my NRE (non-resident external) account, as well as interest received in NRE savings a/c and NRE FD receipts?
I assume that you work as a member of crew of an Indian ship. Under normal provisions, if your period of stay in India equals 60 or more days during the current financial year (FY), coupled with satisfaction of the condition of combined period of stay in India totaling 365 or more days in previous four FYs, then you are considered as a resident under the Income Tax Act, 1961 (ITA).
However, certain relaxations have been provided to members of crew of an Indian ship leaving India during a financial year. In such case, the threshold increases from 60 days to 182 days.
Since you could not satisfy this condition during FY24 and, given your facts, you will become a ‘Resident and Ordinary Resident’ (ROR) for this fiscal year. Accordingly, your salary from exercise of employment in international waters would also become taxable in India, irrespective of the fact that it has been credited to NRE account.
NRE interest taxation depends on your residential status under the Foreign Exchange Management Act, 1999 (FEMA) and not under ITA. If you are a non-resident under FEMA during a particular FY, then you can continue to claim your interest income as being exempt from tax, even though technically you would qualify as ROR under ITA.
It is possible to take a view that you can continue to remain a FEMA non-resident for FY24 since your period of stay outside India in the preceding FY was more than 182 days, and that you have overstayed in India only during the current FY due to your marriage and without carrying any intention to leave the merchant navy in the future.
However, you should take professional advice in this regard to determine the residential status under FEMA in detail.
Harshal Bhuta is a partner at chartered accountancy firm P.R. Bhuta & Co.