The government has notified new tax rules for seafarers working on ships flying the Indian flag to help them qualify for non-resident status and end an anomaly that is cited by local fleet owners as the main reason for an acute shortage of sailors to man their vessels.

On Monday, the Central Board of Direct Taxes (CBDT) issued a gazette notification clarifying that the period of stay of seafarers outside India will be calculated from the date stamped on their continuous discharge certificate (CDC)—a seafarer’s identity document—at the time of joining the ship for the voyage till the date entered in the CDC at the time of signing off. As a result, the period spent by a ship in Indian coastal waters is also taken into account for computing the non-resident status and the resultant tax concessions.

“This will give a big boost to Indian shipping,” a shipping ministry spokesman said. “Seafarers working on Indian registered ships will now be on par with those working on foreign ships for the computation of non-resident status.”

A seafarer serving on Indian ships outside India for a period of 182 days or more in a year is considered to be a non-resident. However, the time spent by a ship in Indian territorial waters is considered as period of service in India, according to tax rules framed in 1990.

For instance, an Indian ship going from India to Singapore passes through various Indian ports on its route, such as Nhava Sheva, Kochi, Kandla, etc. Thus, the Indian ship starting its journey from Nhava Sheva in Maharashtra heading for Singapore remains in Indian coastal waters for quite some days before crossing the coastal boundaries of India.

In this case, the number of days outside India of Indian crew working on such Indian ships gets counted only from the date when the Indian ship crosses the coastal boundaries of India.

However, Indian crew serving on foreign ships for 182 days or more are treated as non-resident, irrespective of where the ship trades (including Indian waters).

This led to a continuous drift of personnel from Indian ships to foreign flag ships under the lure of higher “take home” pay packets, without having to pay tax in India due to this unintended differential tax treatment.

“This will help Indian ship owners to retain seafarers,” said B.B. Sinha, a director looking after personnel and administration at Shipping Corp. of India Ltd. “Seafarers don’t have to join foreign ships to get non-resident status, which they were doing so far,” said Sinha, who was selected by the government-headhunter, the Public Enterprises Selection Board, to be the next chief executive of SCI.

“This will help thousands of seafarers get non-resident status,” said Abdulgani Y. Serang, general secretary of the National Union of Seafarers of India (NUSI).

As a result, Indian flag ships, which are by law required to hire only Indian crew, faced an acute shortage of experienced manpower, particularly in the officers category.

On 28 February, while presenting the Union budget for 2015-16, finance minister Arun Jaitley sought to end the anomaly. “In the case of foreign bound ships where the destination of the voyage is outside India, there is uncertainty with regard to the manner and basis of determination of the period of stay in India for crew members of such ships who are Indian citizens,” according to the budget documents.