Moonlight for extra income? Know Income Tax Rules

what is moonlight

Simply put, moonlighting It means taking up a job other than your primary employment. The second job is usually taken over their regular job without the employer’s consent

There is no separate mention of Chandni in Income Tax. Income from another employer can be received either in the form of salary or professional fees. Income tax (IT) officials have cautioned that moonlight may have some tax implications, The Economic Times informed of.

What are the tax implications of moonlighting?

Archit Gupta, Founder and CEO, Clear said that income from Chandni can result in complex tax situations that the taxpayer should be aware of.

Income from moonlight received as business income or professional fee

Income of a business or professional nature can be taxed under the head ‘PGBP-Profits and gains from business and profession’. Expenses incurred during the second job, such as travel costs, depreciation on laptops, etc., can be considered business expenses and deducted from their income. The balance amount will be offered to tax at the applicable slab rates. If the tax payable exceeds 10,000, taxpayers will have to pay advance tax in four installments of 15%, 45%, 75% and 100%.

Alternatively, if the second job is one of the occupations 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 his income. They cannot claim the expenses in this case as they have got a flat deduction of 50%. Also, they have to pay the last installment of advance tax only on March 31.

Income received as salary from Chandni

If taxpayers receive their moonlight income in the form of salary, it can complicate tax calculations and the taxpayer may have to be extra careful while filing his return. To deduct TDS, employers prepare the figure of estimated taxable income. In such an estimate, both the employers consider a standard deduction of Rs. 50,000, whereas the taxpayer can claim it only once. They can also consider 80C deduction, which can exceed the maximum limit of 1.5 lakh in total. At the time of filing taxes, taxpayers will have to make these changes and bear the brunt of additional taxes and interest. To avoid this, taxpayers should calculate the total taxes, deduct the tax deducted (TDS) by the employer and pay the balance amount as advance tax instalments. Here is an example for better understanding:

In the given example, TDS has been deducted on the total income by the employers 18,50,000. Conversely, tax is payable 20,00,000. The taxpayer has to pay advance tax on the additional income of 1,50,000. Otherwise he will have to pay tax. 1,50,000 including interest.