Top IT companies like Wipro, Infosys and TCS have raised concerns about moonlighting. The moonlighting debate has grabbed headlines in the IT industry since Wipro chairman Rishad Premji revealed the issue on Twitter, likening it to a “scam”. Moonlight saw a rise after the covid-19 pandemic.

What is Moonlighting?

Simply put, moonlighting means doing a job other than your primary job. A second job is usually taken without the employer’s consent in their normal job

There is no specific reference to moonlighting in the income tax. The income of the second employer can be considered as salary or wages. Income Tax (IT) authorities have warned that moonlighting may have tax implications, The Economic Times reported.

What is the effect of the moonlighting tax?

Archit Gupta, Founder & CEO of Clear, said that moonlighting income can lead to difficult situations that taxpayers should be aware of.

Moonlighting income is considered business income or professional fees

Business or professional income is taxable under the heading ‘PGBP-Profits and gains from business and occupation’. Second job expenses, such as travel expenses, laptop discounts, etc., can be considered business expenses and deducted from their income. The remaining balance will be taxed at the applicable slab rate. If the tax paid is more than that 10,000, the taxpayer has to pay advance tax in four stages of 15%, 45%, 75% and 100%.

Otherwise, if the second job is one of the jobs listed under section 44ADA of the Income Tax Act and the income is less than 50 lakhs, the taxpayer has the option of paying tax on only 50% of his income. They cannot claim the costs in this case because they got a 50% discount. Also, they have to pay the last portion of tax in advance by March 31.

Moonlight income is considered salary

If the taxpayer receives the monthly income as a salary, it may complicate the calculation of the tax and the taxpayer may have to be more careful in filing the tax return. For deducting TDS, the employer constructs an estimated taxable income figure. In such an assessment, both employers consider a standard deduction of Rs. 50,000, but the taxpayer can claim it only once. They can also consider the 80C deduction, which may exceed the maximum limit 1.5 lakhs in total. When filing the tax, the taxpayer must make these changes and bear the additional tax and interest. To avoid this, the taxpayer has to calculate the total tax, deduct the tax deducted by the employer (TDS) and pay the balance as advance tax deduction. Here is an illustration for better understanding:

The impact of the moonshine tax.

See the full picture

The impact of the moonshine tax.

In this case, TDS is deducted by the employer from the total income 18,50,000. On the contrary, the tax paid on 20,000,000. The taxpayer must pay advance tax on the additional income of 1,50,000. Otherwise, he will have to pay taxes 1,50,000 with interest.

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