Income Tax Ruling: Major Tax Relief for Seafarers on NRI Status! ⚖️
- CA. Sachet Agarwal
- Mar 16
- 4 min read
The Mumbai Income-tax Appellate Tribunal (ITAT) recently delivered a landmark judgment in favor of M Gulati, clarifying how tax residency should be determined for individuals working abroad. This ruling is especially important for Indian seafarers, as it confirms that all days spent outside India including for job searches must be counted towards Non-Resident Indian (NRI) status.
📜 Facts of the Case: What Happened?
🔹 M Gulati, an Indian citizen, spent 210 days abroad during the financial year 2015-16. He did not report his foreign income of ₹1.2 crore in India, claiming that he was an NRI and thus not liable to pay tax on his overseas earnings.
🔹 However, the Income Tax Department challenged his NRI status, arguing that 28 of those 210 days were spent on job hunting, not employment. The tax authorities revised his overseas stay to 182 days (210 - 28 = 182), which would make him a tax resident of India under the existing tax laws at the time.
🔹 Under Indian tax law in FY 2015-16, an individual was considered a tax resident if they spent 182 days or more in India. The tax officer excluded the 28 days spent job-hunting abroad and concluded that Gulati had not met the NRI threshold, making him liable for taxation on his entire global income, including ₹1.2 crore earned abroad.
🔹 Gulati contested this decision before the ITAT, arguing that his job search days should be treated as a valid period of stay abroad for NRI calculation.
🔹 ITAT Ruling: After reviewing the case, the ITAT ruled in favor of Gulati, stating that:
All days spent outside India for employment or job search must be counted toward NRI status.
The tax department cannot selectively exclude job-hunting days to change an individual’s tax residency status.
Residency determination should be based purely on the number of days spent in India not the nature of activities conducted abroad.
This ruling set a strong precedent for all Indian seafarers, by ensuring that job search periods are treated the same as employment days when determining NRI status.
⚓ How This Ruling Impacts Indian Seafarers?
✅ Employment & Job Search Both Count!
ITAT confirmed that seafarers who stay abroad between contracts to search for jobs can count those days toward their NRI status.
This ruling prevents the tax department from excluding “job search days” and unfairly classifying a seafarer as a tax resident.
✅ Protection from Unfair Taxation
The tax authorities cannot cherry-pick overseas days to classify a seafarer as an Indian tax resident.
As an NRI, seafarers are only taxed on their Indian income—not their foreign salary.
✅ Strengthens NRI Claims for Seafarers
Many seafarers spend time abroad waiting for their next contract—this ruling now protects them from being taxed unfairly.
ITAT has reinforced that the only thing that matters is the number of days spent in India, not how time abroad is spent.
💡 What This Ruling Does NOT Cover: Vacation Days Abroad
❌ Seafarers who spend time in foreign locations (e.g., Sri Lanka, Dubai, Thailand) solely for vacation purposes will NOT benefit from this ruling.
The ITAT ruling specifically considers only job search and employment-related stays as valid for NRI calculations.
Leisure trips abroad do not qualify as "for the purpose of employment", meaning those days will not be counted toward NRI status.
This is important because some seafarers stay in foreign countries after their contracts to meet NRI requirements, but if the stay is purely for vacation, it will not be considered valid under tax law.
⏳ Why This Matters More Now?
📌 Before FY 2020-21 (Old Rules):
Seafarers needed to spend more than 182 days outside India to qualify as NRIs.
This case applies to FY 2015-16, when the 182-day rule was in effect.
📌 After FY 2020-21 (New Rules):
The 120-day rule now applies to Indian citizens earning more than ₹15 lakh in India.
Seafarers must be extra cautious about their overseas stay calculations, as fewer days abroad can now lead to tax residency in India.
📢 Will This Ruling Still Be Relevant Under the New Income Tax Bill, 2025?
❗ The new Income Tax Bill, 2025 removes the phrase “for the purpose of employment” and now only considers "employment outside India" for NRI status determination.
🔸 Key Concern: Since the ruling was given under the Income Tax Act, 1961, its applicability under the new law remains uncertain.
🔸 What This Means: It will be interesting to see whether the Government of India modifies the new tax bill in response to this ruling.
🔸 Risk Factor: If the new bill remains unchanged, the ITAT ruling may not provide protection to individuals spending time abroad purely for job hunting—only those in active employment will benefit.
⚖️ The Legal Road Ahead: The ITAT Ruling is Not the Final Word! The Income Tax Department still has the right to appeal this ruling before the High Court.
💡 What this means for seafarers:
While this is a strong and positive ruling, it is not yet a Supreme Court or High Court decision.
If the tax department appeals and the High Court reverses the ITAT ruling, then job search days abroad may no longer count towards NRI status.
🌍 Final Takeaway for Seafarers
This ruling sets a crucial precedent for Indian seafarers, ensuring that all overseas days—including job search periods count towards NRI status.
However, there are three key uncertainties:
1️⃣ Vacation days abroad (e.g., Sri Lanka, Dubai) will NOT qualify as employment-related days for NRI status.
2️⃣ The ruling applies under the Income Tax Act, 1961, but its impact under the new Income Tax Bill, 2025 remains unclear.
3️⃣ The Income Tax Department can still appeal this ruling to the High Court, which could overturn it.
Seafarers should remain vigilant and follow future legal developments carefully. If challenged by the Income Tax Department, this ruling can be cited to defend their NRI status—but must be prepared for possible appeals.
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