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Do you know why financial planning is important for seafarers?
What are the financial planning challenges faced by a Seafarer?
The seafarer residential status, taxations, and deductions of a Seafarer?
This article will help you discover all the financial planning challenges one by one. Let’s get started.
The Career of a Seafarer
“How you earn your money and build your career is how you earn your destiny and build your legacy.”
— Robert T. Kiyosaki
How you make money is called a Job. Some people will be held up behind the desk for the whole day – any white-collar job; some may have to work night shifts – Nurses, Drivers, etc.; some need to go door to door – sales rep., Delivery person; some may have to work for 3-5 days & get off after the work – Pilots; some may have to work for months together – Army, Navy.
What about the life of a seafarer?
Is it different from the rest of the careers?
Yes, a seafarer might have to sail for 6 months or more in a year. So, planning & investing is more difficult for a Seafarer. It makes them stand apart from the rest of the world.
“If you don’t find a way to make money while you sleep, you will work until you die.”
– Warren Buffett.
So, there should be a proper financial plan for seafarers on how to invest their hard-earned money. Reassessing the plan once in a while is also important.
Table of Content
1.) Financial planning for Seafarers
2.) Challenges faced by a seafarer
- Hefty emergency reserve
- Retirement benefit
- Health Insurance
- Term Insurance
- Career development of Seafarers
- Freelancing
3.) Residential status
4.) Bank accounts
5.) Power of attorney
6.) Nomination
7.) Taxation & other allied items
8.) Conclusion
Now let’s see the need for Financial Planning for Seafarers. Also, let us discover the challenges in financial planning faced by Seafarers.
Financial Planning for Seafarers
The life of seafarers can be far from idyllic they may be on a long-term voyage that leaves them isolated from friends, family, and loved ones for up to 6 or more months at a time.
Alongside a challenging environment, seafarers will sometimes face extreme weather conditions in some places around the world. Unsurprisingly, communication back home can be problematic for many seafarers owing to varying degrees of access to Wi-Fi on ships or in port. Now let’s take a look at the challenges faced by a seafarer.
Challenges faced by a seafarer
- Hefty emergency reserve:
- Retirement benefit:
- Health Insurance for seafarers:
- Term Insurance for seafarers:
- Career development of Seafarers:
- Freelancing:
Holding cash has a corresponding cost, the opportunity cost of lost interest. Thus, one needs to weigh the benefits of holding cash against the opportunity costs. Though the salary is regularly sent home, sometimes this does not reach or is not sufficient.
A hefty amount is being set aside to meet the demands and needs of the families left behind. Despite the hefty amount of money that is set aside for the next 6 months, the family faces financial challenges due to poor financial planning. It may be due to big expenses without a smart budget plan.
Although, as an outsider, it might sound like a “glamorous” job, ask a seaman, and he would enumerate various difficulties attached to the job.
The painful truth about the shipping industry is that after the end of the contract, the benefits they have been enjoying stop at that point. There is no shipping company that actually looks after your social welfare (in terms of pension, provident, or emergency funds). That’s why seafarers don’t have enough retirement fund.
What are the best seafarer investments for retirement?
How to save enough retirement fund as a seafarer?
A long-term investment strategy will help to overcome this issue. This strategy includes holding assets like bonds, stocks, exchange-traded funds (ETFs), mutual funds, and more. Individuals who take a long-term approach require discipline and patience.
Seafarers often do not plan for their own medical insurance. During the leave period, MOST of the companies do not cover them. Hence if something happens to seafarers or their families during leave, the medical and other related expenses can be huge.
It is, therefore, advisable to go for a Floater type of policy for your entire family. FLOATER PLANS – covers the whole family. It can be a seafarers’ health and benefits plan.
A sailor thinks that the shipping company is providing them with adequate life cover. They don’t realize that the Insurance coverage is only for the tenure of their working period on board.
Even if seafarers take Life Insurance Policies, they are mostly money back or endowment policies, which not only have a very less coverage amount but also charge astronomical premiums. All these plans burn a very large hole in your pocket in the long run.
In Pure term policy, the Insured seafarer gets Risk Coverage of a reasonably large sum for a small premium and can be taken for the long term. If the Insured seafarer survives the term of the insurance (which is for every year for the premium paid), then he or she does not get any money. TERM PLANS for seafarers are pure life covers, meaning that your survivors will be paid in case something happens to you.
Seafarers require to take up courses that include huge fees as part of their career development. Hence it is advisable for seafarers to have their fees as one of their financial goals.
When freelancing, Seafarers get a job on the ship for 6 months. Then when they return, they will be left with no job and hence no income.
Therefore, an emergency reserve of 6 months will not be sufficient; hence, it is better to have an emergency reserve for more than 6 months.
Now let us see the Residential Status of a Seafarer.
- What are the common financial mistakes made by seafarers?Instead of looking for “What is the best investment plan for seafarers?”, it is better to understand what are the common financial mistakes seafarers commit and how to avoid them.Choosing the wrong financial person:
- Spending too much money on less usable things:
- Considering real estate as seafarers’ investment:
- Choosing the wrong insurance:
Trusting an insurance agent or bank manager for your financial life planning is the biggest financial mistake. The former will only try to sell their financial products. They may not help you in your financial life.
So, it is better to contact a financial planner to plan your financial life based on your financial goals.
For example, let’s say a car. You need a car to travel from one place to another. But, for your profession, you will not use a car frequently.
So, spending too much money to buy an expensive car is too extravagant.
It is another financial mistake that needs to be avoided.
The common mistake that seafarers make is buying and relying on real estate for a fixed income.
Of course, one needs to have real estate in their investment portfolio, but solely relying on real estate is not an ideal thing. But it will not give passive income that can beat inflation.
Knowing the purpose of your insurance is important. Insurance is different from investment.
So, purchasing a ULIP or a money-back insurance plan is not a way to save your money. Go only ofr pure online term insurance.
Residential status of Seafares:
Resident:
An individual seafarer is deemed to be resident of India in any previous year if he satisfies any of the following conditions:
1. If he is in India for a period of 182 days or more during the previous year; or
2. If he is in India for a period of 60 days or more during the previous year and 365 days or more during the 4 years immediately preceding the previous year.
The period of 60 days as mentioned in (2) above shall be substituted with 182 days – Indian citizen and a person of Indian origin who visits India during the year & the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India.
The period of 60 days as mentioned in (2) above shall be substituted with 120 days – Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year.
Resident Not Ordinarily Resident:
If an individual seafarer qualifies as a resident, the next step is to determine if the seafare is a Resident ordinarily resident (ROR) or an RNOR. He will be a ROR if he meets both of the following conditions:
1. Has been a resident of India in at least 2 out of 10 years immediately after previous years and
2. Has stayed in India for at least 730 days in 7 immediately preceding years
Therefore, if any seafarer fails to satisfy even one of the above conditions, he would be an RNOR.
In a Nutshell:
If a crew member of a ship works outside India for 183 days or more during the financial year as per his/ her CDS (Continuous Discharge Certificate) or passport, his/ her residential status changes to a Non-Resident Seafarer. The overseas salary of a NRI seafarer shall not be taxed in India.
As per the new Section 6(1A), applicable from the financial year 2020-21, an NRI (including seafarer) can be categorized as a resident in India if his/ her stay in India exceeds 119 days and his taxable income in India exceeds Rs. 15 lakhs during a financial year.
Now let’s see what the bank accounts a Seafarer should have:
Bank accounts:
Seafarers can open an NRE/ NRO account in any public sector or private bank. In India, the expatriates (NRI status for Seafares- those who stay for less than 182 days in India) are required to have NRE savings accounts.
NRE account for Seafarers – to park the foreign income of an NRI status Seafares.
NRO account for Seafarers – to deposit the Indian income of an NRI.
FCNR account/deposits – maintained in the primary foreign currencies in India.
Since, for seafarers the salary is remitted by the shipowner/operator, and the date is not fixed, it is better to leave some pre-signed forms (all chalan, cheque) with the family members at home.
What are the key benefits of having a seafarer bank account?
- Easy online access even during poor network connection
- Easy to exchange your foreign currency salary credits.
- International ATM access.
- Can avail of all the bank related services 24X7.
- Tax exemption on the interest.
Frequently asked questions on Seafarers bank account:
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How to choose the best bank accounts for seafarers?
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Can a seafarer open an NRO account?
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Can seafarers have a resident savings account?
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Can seafarers invest in mutual funds in India?
You can choose the best bank based on its interest rate, minimum balance, customer service availability, customer review, and number of ATM access.
As a seafarer you can choose abank that offers better online access and service. So that, even when you are offshore, you will be able to use the banking services.
Yes, sailors / seafarers who are not residents may create both NRE and NRO accounts. They are offered to qualified applicants by several institutions
It is prohibited to have a residential Indian savings account if a seafarer is considered an NRI under Indian income tax legislation. So, you can change your savings account into an NRO (Non-Resident Ordinary) account.
Yes, a lot of asset management companies (AMCs) in India allow NRIs to invest in mutual funds. Only a small number of mutual fund companies, though, permit US and Canadian-based NRIs to invest in India.
As a seafarer, you are allowed to invest in India/
Now let’s see who has the power of attorney in the case of a seafarer:
Power of attorney:
Power of attorney is a legal document that gives power to a representative who can fill in the absence of the NRI seafarer during any financial dealing.
An NRI seafarer can appoint any person’s family member/friend to legally represent him or her to complete any transaction.
Nomination:
Since the life of a seafarer is at high risk, it is compulsory to fill in the nominee details for all banking & financial products.
Bank account – Better to open Either or a Survivor account.
Insurance – Nominee
Investment products – Second applicant – Any paperwork can be done while the primary applicant is on board.
Now let us see the taxations and the deductions of a seafarer.Taxation & other allied items:
NEO/NRE accounts for seafarers:
- NRI seafarer must receive a salary in a Non-resident External Account (NRE), such salary is not taxable.
- However, the Salary received in a Non-resident ordinary account (NRO) is completely taxable, even if the seafarer has completed 184 days outside India i.e., even if the seafarer is an NRI.
- There is no limit on repatriation from NRE & FNCR accounts. But, the repatriation from the NRO account is allowed for up to USD 1 Million.
NRE seafarer account interest:
- Interest received in an NRE account is exempt from tax. Interest earned from the NRO account is taxed at normal slab rate.
NRI seafarer domestic investments/income:
NRI seafarers having any domestic income such as rent, dividend, or income from any other investment must maintain an NRO account to deposit the same.
Seafarer investments:
National Pension Scheme (NPS):
- Seafarers’ investment in the Nation pension scheme (NPS) is allowed as a deduction from Gross total income up to Rs. 50,000 under Sec 80 CCD.
Sovereign Gold Bond (SGB):
- NRI seafarers cannot invest in Sovereign Gold Bond. However, a seafarer who had invested when they were resident Indian can continue to hold till maturity.
Can seafarer open PPF account?
- NRI seafarer can’t open a PPF account. However, a seafarer who had opened a PPF while being a resident & later became an NRI can continue to hold its initial maturity of 15 years. Moreover, an NRI seafarer can continue to invest until its maturity.
Government Securities & Treasury bills:
- NRI seafarers are allowed to invest in dated Government securities & treasury bills but not in government bearer securities
Conclusion:
To conclude, all the above things may be a daunting task for a seafarer. But with proper understanding & discipline, a secure future is not an elusive dream anymore. You can also discover a financial advisor or financial planner to make this dream come true.
“You can never cross the ocean unless you have the courage to lose the sight of the shore”
– Christopher Columbus”
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