Tax implications of moonlighting you could know

Moonlighting means taking on one other job whereas nonetheless in employment with a company. The second job is often with out the employer’s information and therefore the revenue earned from moonlighting can result in tax complexities that the taxpayer have to be cautious about.

For occasion, if the moonlighting revenue is acquired as wage, each the employers will think about commonplace deduction of ₹50,000 and 80C deductions to calculate the tax legal responsibility. Additionally, each the employers will have in mind the essential exemption restrict and think about the tax slab as per the respective salaries. This may result in the TDS being deducted by every employer to be decrease than the taxpayer’s mixture tax legal responsibility (see desk).

In the given instance within the desk, the stability tax payable of ₹226,200 have to be paid as advance tax instalments on respective due dates, else the taxpayer will probably be liable to curiosity and penalty on late fee of tax.

Income from moonlighting might be acquired as skilled charges too and the taxpayer can declare the bills incurred for his or her enterprise or career, similar to assembly bills, conveyance, depreciation on laptop computer, and many others. as a enterprise expense and deduct it from the skilled charges provided for tax.

Alternatively, part 44ADA of the Income Tax Act permits an expert engaged in specified professions to supply solely 50% of their skilled charges to tax. This rule presumes that fifty% of the skilled charges acquired can be spent for enterprise functions and therefore solely the remaining 50% is handled as revenue from enterprise / career and taxed accordingly. However, the charges shouldn’t exceed ₹50 lakh to avail presumptive taxation scheme.

Moonlighting revenue within the type of skilled charges slightly than wage is healthier from taxation perspective.

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Let’s perceive with an instance. Say, Sandhya attracts a wage of ₹14 lakh from Employer A. Her taxable revenue after commonplace deduction and 80C advantages will probably be ₹12 lakh and TDS of ₹179,400 will probably be deducted. Sandhya additionally moonlights in a consulting function and receives skilled charges of ₹9 lakh. Here, 10% TDS will probably be deducted ( ₹90,000). Sandhya opts for presumptive taxation so solely ₹4.5 lakh will probably be taxable (50% of gross revenue u/s 44ADA). Her complete taxable revenue is ₹1,650,000 ( ₹12 lakh wage + ₹4.5 lakh skilled revenue) and the whole tax legal responsibility can be ₹319,800, out of which ₹2,69,400 is already deducted as TDS (wage TDS ₹179,400 + ₹90,000 TDS on skilled charges). Hence, tax payable can be ₹50,400.

If you examine this to the instance within the desk, although the incomes are the identical, the tax legal responsibility for Sandhya is considerably decrease by ₹1,40,400.

Nitesh Buddhadev is a chartered accountant and founding father of Nimit Consultancy.

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