FEMA for Seafarers: NRE, NRO and FCNR Accounts, and the Savings Account You Should Have Converted

A seafarer deals with two sets of rules about being a non-resident, and they do not ask the same question.

• Income tax asks how many days you spent in India this financial year. It decides whether your salary is taxed. Our income tax guide for seafarers covers it.
• FEMA — the Foreign Exchange Management Act — asks why you are outside India. It decides which bank accounts you may hold, how money moves in and out of India, and whether NRE interest is tax-free.

Most seafarers sort out the first and never think about the second. That is how a non-resident ends up running a resident savings account for ten years.

---

The FEMA test: purpose, not days

Under Section 2(v) of FEMA, a person resident in India is someone who resided in India for more than 182 days in the preceding financial year — but the definition excludes a person who has gone out of India, or stays outside India, for or on taking up employment outside India, or for any other purpose that indicates an intention to stay outside India for an uncertain period.

Two consequences matter for seafarers:

1. The test turns on purpose. A seafarer who leaves India to take up employment on a foreign ship is generally a person resident outside India from that departure — not from the end of the year, and not after counting days.
2. Short visits home do not undo it. RBI’s own instructions allow an NRE account to continue as an NRE account while the holder is in India on a short visit. Leave between contracts is a visit; coming ashore to stay is a return.

So FEMA status usually changes once when your sea career begins and once when it ends, while tax status is recalculated every year. In most years the two agree. In the year you start sailing, and the year you come ashore for good, they can differ — and that is when accounts go wrong.

---

The three accounts

	NRE	NRO	FCNR (B)
What goes in	Foreign earnings	Indian income	Foreign currency
Currency	Rupees	Rupees	USD, GBP, EUR etc.
Repatriable	Fully	USD 1M/FY	Fully
Interest (non-resident)	Tax-free	Taxable	Tax-free
Form	Savings, FD	Savings, FD	FD only, 1–5 years

NRE (Non-Resident External) is the account for your ship salary. Wages paid by a foreign employer can be credited straight to it. The balance and interest can be sent abroad freely. Interest is exempt from income tax while you are a person resident outside India under FEMA. And under CBDT Circular 13/2017, salary for work on a foreign ship does not become taxable merely because it lands in an NRE account in India.

NRO (Non-Resident Ordinary) is for income that arises in India — rent from a flat, dividends, interest, the proceeds of a property sale, and balances from your old resident accounts. Interest is taxable, and banks deduct TDS at 30% plus cess. Money can go abroad up to USD 1 million a financial year with Forms 145 and 146 (formerly 15CA and 15CB).

FCNR (B) is a fixed deposit held in foreign currency. There is no rupee conversion risk, and the interest is tax-free for a non-resident — and, unlike NRE interest, it stays tax-free while you are resident but not ordinarily resident after coming ashore. That makes it a useful place for savings in the last years of a sea career.

Don’t put foreign earnings into NRO

Money that goes into NRO is treated as Indian money: its interest is taxed, and taking it back out is subject to the annual cap and the remittance paperwork. Crediting ship salary to NRO, or moving NRE money into NRO without a reason, gives up both advantages.

---

The account you should have converted

When you become a person resident outside India, your resident savings and deposit accounts should be redesignated as NRO accounts. You may not keep operating them as resident accounts.

In practice many seafarers never tell the bank. The salary goes into a new NRE account, but the old savings account — opened as a student, linked to the family’s bills, an insurance premium, a SIP — carries on as resident. It is one of the most common FEMA lapses we see.

Why it matters:

• It is a contravention of FEMA. Section 13 provides for a penalty of up to three times the sum involved where that can be quantified, or up to ₹2 lakh where it cannot. Lapses of this kind are usually regularised through the bank and, where needed, compounded — but the fix is cheaper before anyone asks.
• Interest on the account is taxed as a resident’s would be, and TDS is deducted at resident rates — which then has to be reconciled on your return.
• KYC records at the bank, your depository and your mutual funds show you as resident, which sooner or later contradicts the non-resident status on your income-tax return.

The fix is straightforward: ask the bank to redesignate the account as NRO, and update your residential status in your KYC with the bank, your demat account and each mutual fund. Do it the next time you are home.

---

A checklist for your first contract

1. Open an NRE account and have your employer credit wages to it.
2. Redesignate your resident savings and deposit accounts as NRO.
3. Update KYC to non-resident at your bank, depository and mutual funds; convert or reopen your demat account under the NRI route.
4. Update your residential status on the income-tax e-filing portal once your status for the year is clear.
5. Keep your CDC and passport in order — the same documents prove both your tax status and your FEMA status.

When you come ashore

Coming ashore for good reverses the process. RBI’s instructions require NRE accounts to be redesignated as resident accounts, or their funds moved to a Resident Foreign Currency (RFC) account, immediately on your return to India to stay. NRO accounts become resident accounts. FCNR deposits may run to maturity. The timing — and how to use the not-ordinarily-resident years — is in our guide to coming ashore for good.

---

Frequently Asked Questions

Is a seafarer an NRI under FEMA?

Generally, yes. FEMA excludes from “person resident in India” anyone who has gone out of India for, or on taking up, employment outside India. A seafarer leaving India to work on a foreign ship is usually a person resident outside India from that departure, and short visits home between contracts do not change it.

Can a seafarer keep a normal savings account in India?

Not as a resident account. Once you are a person resident outside India under FEMA, resident savings and deposit accounts should be redesignated as NRO accounts. Ask your bank to redesignate the account and update your KYC.

Should ship salary go to an NRE or NRO account?

NRE. Foreign earnings credited to an NRE account are fully repatriable, the interest is tax-free while you are a non-resident under FEMA, and CBDT Circular 13/2017 confirms the salary is not taxed in India merely because it is credited there. NRO is for income that arises in India.

Is FCNR interest taxable after a seafarer returns to India?

FCNR interest is exempt for a non-resident and for a resident but not ordinarily resident. After coming ashore, the deposit can run to maturity and its interest stays tax-free for as long as you remain not ordinarily resident.

---

Related reading

• Income tax for seafarers: NRI status, the 182-day rule and CDC dates
• Seafarer coming ashore for good: RNOR, accounts and timing
• Income-tax notice questioning a seafarer’s NRI status
• Seafarer NRI days calculator
• NRI selling property in Punjab: tax, TDS and repatriation