A tax notice says your NRE seafarer salary is taxable, and why it usually is not

The notice almost always turns on one idea. A non-resident is taxed in India only on income that is received in India or that accrues in India (Section 5(2)). The department reads your NRE bank statement, sees a large salary credit into an Indian account, and argues that the salary was therefore received in India and is taxable here.

It is an understandable reading of the bank statement, and it is the reason these notices are common, but it confuses two different things: where the money was earned, and where it happened to land. Your salary was earned for work performed on a ship outside India. When your foreign employer later pays it into your Indian NRE account, that credit is a remittance of income you had already earned abroad, not the moment you first received it. The notice treats the remittance as the receipt, and that is the flaw the courts have corrected.

The position that defeats the notice is that the salary accrues outside India, so an NRE credit does not bring it into the Indian net. The Calcutta High Court settled this in Sumana Bandyopadhyay v. DDIT, decided on 13 July 2017. The Court held that salary for services rendered by a non-resident on a foreign ship accrues outside India, and that crediting it to an NRE account in India does not make it assessable here, because the credit is a transfer of already-earned income, not the point of first receipt.

CBDT Circular 13/2017, issued on 11 April 2017, says the same in the department's own words: the salary of a non-resident seafarer for services on a foreign ship, credited to an NRE account with an Indian bank, is not to be included in total income merely on account of that credit. So the answer to the notice is not an argument you have to invent; it is the department's own circular plus a High Court judgment, applied to your facts.

It helps to know that this was fought and settled, because it tells you how strong your ground is. The issue first went the wrong way. In Tapas Kumar Bandopadhyay v. DDIT, the Kolkata Tribunal in 2016 accepted the department's view and treated the NRE credit as salary received in India, and therefore taxable. That is the decision that alarmed the seafarer community.

It did not survive. On appeal the Calcutta High Court reversed the position in Sumana Bandyopadhyay, holding the salary accrues outside India and is not assessable on a receipt basis. Around the same time CBDT issued Circular 13/2017 adopting the taxpayer-friendly result. So the arc runs from an adverse Tribunal decision to a High Court reversal and a departmental circular that now binds the assessing officers. A notice today is running against the settled position, not with it, which is exactly why it is answerable.

The protection is real but it is specific, and knowing its edges keeps you from over-claiming. Circular 13/2017 covers a precise case: a non-resident, services rendered on a foreign ship, and salary credited to an NRE account. Move outside any of those and the clean shelter falls away.

The circular is silent on salary paid into an NRO or an ordinary resident savings account, so if that is where your salary landed you cannot simply cite the circular; the case has to be argued on the underlying accrual principle, which is harder without the circular's cover. It is silent on Indian-flagged ships, where the services may not be outside India in the same way. And it does not help a seafarer who is actually a resident or RNOR for the year, because their worldwide income is in the Indian net regardless of the account. So the first thing to check before answering the notice is whether your facts sit squarely inside the circular. Where they do, the notice is weak; where they stray, the response has to be built more carefully.

Suresh, a marine engineer, was a non-resident last year, sailed foreign-going ships, and had his salary of about 28 lakh rupees paid into his NRE account in Chennai. Months after filing, he received a notice proposing to add the whole salary as income received in India.

His CA answers it on the settled position. The response sets out that Suresh was a non-resident for the year, established from his Continuous Discharge Certificate and passport with Rule 126 applied to his voyage days; that the salary was for services on foreign ships and so accrued outside India; and that the NRE credit is a remittance, not first receipt, relying on Sumana Bandyopadhyay and Circular 13/2017. The employer's salary advice and the NRE statement are attached to show the source and the account. On these facts the addition does not stand, and the notice is dropped without the salary being taxed. Had the salary gone to an NRO account, the same response would have had to work harder, which is exactly why the account it lands in matters so much.