Earning Extra Income through Moonlighting: Understanding Income Tax Regulations



The practice of moonlighting, in which people work a second job on top of their primary career, has become more common in today’s fast-paced economy. There are many different reasons to pursue a second career, such as enhancing one’s income, venturing into uncharted territory, or fostering personal interests. However, several nations, including India, continue to disagree on the legality of moonlighting. We explore the idea of moonlighting and its legal ramifications in the Indian context in this legal discourse.

What is Moonlighting

Moonlighting, to put it simply, is doing a second job on top of your regular job. Usually, the person takes the second job at their main employment without getting permission from their boss.

Income Tax does not specifically address moonlighting. The money from the second job can be taken in the form of professional fees or salary. Moonlighting may have certain tax ramifications, the Income Tax (IT) authorities have warned.

India's Laws Regarding Moonlighting

There isn’t a specific law that forbids moonlighting in India. Employers and employees involved in such activities should give considerable thought to the legal and ethical aspects of the matter.

Tax Repercussions of Income from Moonlighting

When people include additional money from side jobs in their pay, it makes their tax calculations more complicated. Taxpayers need to be cautious when completing their returns. Businesses calculate their taxable income in order to deduct Tax Deducted at Source (TDS). These estimates, however, might take into account things like the standard deduction of ₹50,000, which is a benefit the taxpayer can only claim once. Employers may also take into account the 80C deduction, which may exceed the ₹1.5 lakh threshold. Adjusting these parameters throughout the income tax filing process is the taxpayer’s responsibility; otherwise, they may incur additional taxes and interest. In order to avoid this situation, taxpayers must compute the total tax amount, deduct employer-assisted tax (TDS), and pay the remaining balance through advance tax installments.

Moonlighting earnings declared as business or professional fees

Business and professional income may be subject to taxation under the “PGBP-Profits and Gains from Business and Profession” heading. They can deduct business expenses from their income, such as travel expenses and laptop depreciation, from the money they earn from their second employment. Tax will be applied to the leftover amount at the relevant slab rates. Taxpayers are required to pay advance tax in four installments of 15%, 45%, 75%, and 100% if the amount owed exceeds ₹10,000.

Alternatively, the taxpayer can elect to pay tax on only 50% of their income if the second employment falls within one of the professions specified in section 44ADA of the Income Tax Act and their income is less than ₹50 lakhs. In this instance, they are not able to claim the costs because they have been given a fixed 50% cut. Additionally, on March 31st, they are just needed to pay the final Advance tax installment.

Salary gained from moonlighting earnings

It can be more difficult to calculate taxes and for taxpayers to file their returns carefully if they earn their salary from their side gig. Employers calculate an estimated taxable income amount in order to deduct TDS. Both employers take into account the standard deduction of Rs. 50,000 in this estimation, even though the taxpayer is only allowed to claim it once. They might also take into account the 80C deduction, which could be more than the ₹1.5 lakh ceiling. The burden of additional taxes and interest will fall on the taxpayers as they make these modifications during tax filing. The taxpayers must calculate their total taxes, deduct the employer’s tax deduction (TDS), and pay the remaining amount in advance tax installments in order to prevent this.

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