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Introduction: In today’s dynamic economic landscape, many individuals are turning to moonlighting to supplement their income. Whether freelancing, working from home, or finding other sources of extra income, managing and declaring this additional income is crucial for financial responsibility and legal compliance.

This increase in the search for additional sources of income not only demonstrates the variety of options available, but it also emphasises how important it is to manage financial responsibility with legal compliance, especially when it comes to managing and declaring this extra money. As the landscape of moonlighting expands to include a variety of extra-income jobs, from how to earn extra money online to finding a moonlight job, the importance of knowing and completing an Income Tax Return ( ITR ) for such income increases. This guide explores the intricacies of moonlighting, particularly in India, and the importance of filing Income Tax Returns (ITR) for such income.

Understanding Moonlighting and Its Implications

Definition of Moonlighting

Moonlighting is the practice of holding a second job, usually after regular working hours, on top of one’s primary employment. People can do this to supplement their income and pursue interests outside of their primary employment by working on the weekends or in the evenings.

Moonlighting in India

India has witnessed a notable surge in moonlighting, especially in the IT industry, where about 43% of employees acknowledge its advantages. Growth is being driven by the desire for more income and the flexibility that comes with working remotely. While there is no specific law prohibiting moonlighting in India, it is crucial to consider the legal and ethical implications. Employment contracts often include clauses that restrict secondary employment without prior consent, and violating these can lead to legal consequences. Importance of Filing ITR for Moonlighters Moonlighters are required by law to disclose their earnings in accordance with strict guidelines. All sources of income, including moonlighting, must be reported on the Income Tax Return (ITR), in accordance with the Income Tax Act of 1961. As the law gives the tax authorities the means to enforce these regulations, breaking the law might result in hefty penalties.

Consequences of Not Filing

Significant financial penalties may arise from failure to file an ITR. For example, if the ITR is not filed by the deadline, there is a penalty of Rs. 5,000 for incomes over Rs. 5 lakh. Additionally, interest under Section 234A at 1% per month may be charged on the unpaid tax amount. Furthermore, moonlighters risk losing the ability to carry forward losses, which can affect their financial planning adversely.

How to File an ITR for Moonlighting Income

Choosing the Right ITR Form

Depending on their sort of income, moonlighters need to choose the right ITR form. ITR-3 or ITR-4 should be used for people whose income is classified as “business or profession.” Individuals with business income should file ITR-3, while those who choose the presumptive tax scheme and have taxable income of Rs 50 lakh or less should file ITR-4 or they can choose to show it as an income from other sources depending on the situation.

Documenting Moonlighting Income It is imperative that those who have multiple jobs accurately document and declare their income. The income should be declared under “profits and gains from business and profession” if it is received as professional or business fees rather than under ‘salary,’ which is where it should be reported if it is received as pay. This includes maintaining records of all receipts and allowable expenses, which can be claimed as deductions. Deductions and Allowances If you’re moonlighting, you might be wondering about taxes. You can claim deductions for expenses directly related to your moonlighting gig, like travel costs, internet bills, and even electricity if it’s used for your work. This applies if your moonlighting income is considered professional or business income. Section 44ADA of Income Tax Act.

Now, things get a little easier for some professions. If you’re a freelancer or consultant, and your yearly earnings from moonlighting are under Rs. 75 lakh, you have a handy option under Section 44ADA. This lets you declare only 50% of your income as taxable, which simplifies your tax filing without needing to keep detailed records of every expense. Professionals can report their taxable income under this plan at a set rate of 50% of their gross receipts, without the depreciation or expenditure deductions. The gross earnings of Rs 50 lakh is the eligibility level under Section 44ADA until FY 2022–2023. The threshold limit has been increased to Rs 75 lakh as of FY 2023–2024. The higher threshold limit is accessible if cash receipts make up no more than 5% of total revenue.

The Budget 2023 revised presumptive taxation limits under Sec 44AD and Sec 44ADA from FY 2023-24 (AY 2024-25) as follows:

Category Previous limits Revised limits
Sec 44AD: For small businesses Rs. 2 crore Rs. 3 crore*
Sec 44ADA: For professionals like doctors, lawyers, engineers, etc. Rs. 50 lakh Rs. 75 lakh*

*The increase in limits is subject to a condition that the 95% of the receipts must be through online modes.

Challenges and Tips for Moonlighters

Avoiding Tax Complications

Selecting the appropriate income tax return form is important for avoiding legal issues and penalties for those who moonlight. Be careful to distinguish between the money you receive from side gigs and your “salary,” which is classified as “business and professional income.” You should choose ITR-3 or ITR-4, which are intended for business or professional earnings, if your gig income is substantial. Recall that there is a Rs 5,000 penalty for filing taxes after the deadline, so be sure to keep track of your deadlines. Seeking Professional Help It is recommended to consult with a tax expert to effectively negotiate the difficulties of moonlighting taxation. Tax professionals may provide personalised advice, ensuring that all earnings are properly classified and that all possible deductions are claimed, minimising tax liability. This is especially useful for moonlighters, who may be ignorant of the various tax treatments for different sorts of income.


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I am a qualified Chartered Accountant with my experience in tax litigation matters both Income Tax , at an earlier age of 24 I have started representing before CIT(A) & ITAT and have been successful in providing relief to my clients , I have a vast knowledge regarding Futures & Options Trans View Full Profile

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July 2024