Do you know why financial planning is important for seafarers?
What are the challenges faced by a Seafarer while planning for finances?
The residential status, taxations, and deductions of a Seafarer?
This article will help you discover all these 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 – Nurse, 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. . This 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 plan for the seafarers on how to invest their hard-earned money. Reassessing theplan once in a while is also important.
Table of Content
- Hefty emergency reserve
- Retirement benefit
- Health Insurance
- Term Insurance
- Career development of Seafarers
Now let’s see the need for Financial planning for Seafarers. Also, let us discover the challenges 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 tough environment, seafarers will sometimes also face extreme weather conditions at 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
1.)Hefty emergency reserve:
Holding cash has a corresponding cost, that is, 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. This 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).
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.
A sailor thinks that the shipping company is providing them with adequate life cover. They don’t realize the fact that the Insurance cover 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 Person gets a Risk Coverage of a reasonably large sum for a small premium and can be taken for a long term. If the Insured person 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 are pure life covers, meaning that your survivors will be paid in case something happens to you.
5.)Career development of Seafarers:
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.
An individual is deemed to be resident in 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 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 qualifies as a resident, the next step is to determine if he/she 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 previous years and
2. Has stayed in India for at least 730 days in 7 immediately preceding years
Therefore, if any individual 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 non-resident 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 are the bank accounts a Seafarer should have:
Seafarers can open an NRE/ NRO account in any public sector or private bank. In India, the expatriates (NRIs- those who stay for less than 182 days in India) are required to have NRE savings accounts.
NRE account – to park the foreign income of an NRI.
NRO account – 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.
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.
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 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:
- NRI seafarer must receive a salary in a Non-resident External Account (NRE), such salary is not taxable. However, 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.
- 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.
- Interest received in an NRE account is exempt from tax. Interest earned from the NRO account is taxed normal slab rate.
- 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.
- 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.
- 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.
- NRI seafarer can’t open a PPF account. However, a seafarer who had opened a PPF while being resident & later become NRI can continue to hold its initial maturity of 15 years. Moreover, an NRI seafarer can continue to invest until its maturity.
- NRI seafarers are allowed to invest in dated Government securities & treasury bills but not in government bearer securities
To conclude, all the above things may be a daunting task for a seafarer. But with proper understanding & discipline, a secured future is not an elusive dream anymore. You can also reach out to a 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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