Moonlighting for additional income? Know the income tax rules

What is Moonlighting

Put simply, moonlighting means taking up another job in addition to one’s primary employment. The second job is typically taken without the employer’s consent at their regular job

There is no separate mention of moonlighting in Income Tax. The income from the second employer can be received either as salary or professional fees. The Income Tax (IT) authorities have cautioned that moonlighting can have some tax implications, The Economic Times reported.

What are the tax implications of moonlighting?

Archit Gupta, Founder & CEO, Clear said the income from moonlighting might result in complicated tax situations that the taxpayer needs to be aware of.

Income from moonlighting received as business income or professional fees

Income of a business or professional nature may be taxed under the head ‘PGBP-Profits and Gains from Business and Profession’. The expenses incurred during the second job, such as travel costs, depreciation on a laptop, etc., can be considered business expenses and reduced from their income. The remaining amount will be offered to tax at applicable slab rates. If the tax payable exceeds ₹10,000, taxpayers must pay advance tax in four installments of 15%, 45%, 75%, and 100%.

Alternatively, if the second job is one of the professions listed in section 44ADA of the Income Tax Act and the income is less than ₹50 lakhs, then the taxpayer has the option to pay tax on only 50% of their income. They cannot claim the expenses in this case as they have received a flat 50% reduction. Also, they are required to pay only the last installment of Advance tax on 31st March.

Income from moonlighting received as salary

If taxpayers receive their moonlighting income as salary, it can complicate the tax calculations and the taxpayer may have to be extra careful while filing their returns. For deducting TDS, employers draw up an estimated taxable income figure. In such an estimation, both employers consider the standard deduction of Rs. 50,000, whereas the taxpayer can claim it only once. They may also consider the 80C deduction, which may exceed the maximum limit of ₹1.5 lakhs in total. While filing taxes, the taxpayers will have to make these changes and bear the brunt of additional taxes and interests. To avoid this, the taxpayers must compute the total taxes, subtract the tax deducted(TDS) by the employer and pay the balance as advance tax installments. Here’s an illustration for better comprehension:

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In the given instance, TDS has been deducted by the employers on a total income of ₹18,50,000. In contrast, the tax is payable on ₹20,00,000. The taxpayer must pay advance tax on additional income of ₹1,50,000. Failing which, he will have to pay a tax on ₹1,50,000 along with interest.