By Nitesh Buddhadev
Moonlighting means taking up a side job while still in employment with the primary employer. Often, the side job without the primary employer’s knowledge. The side job may be outside the working hours of the primary job i.e. at night or on the weekends. Recently, one company has fired employees for Moonlighting whereas some have allowed Moonlighting subject to certain conditions. Let’s understand the tax implication of Moonlighting income. 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.
Suppose Preeti is working for employer A and she takes up work with employer B on weekends. She is on the payroll of both employers and receiving salary. Both employers will consider standard deduction of Rs. 50,000 and 80C deductions. Also, both employers will determine tax liability after giving effect of the lower tax slabs. Hence the TDS deducted by each employer will be lower than her aggregate tax liability.
|Employer A||Employer B||Total Income||Remarks|
|Standard Deduction||50,000||50,000||50,000||Restricted to Rs. 50,000|
|80C deduction||1,50,000||1,50,000||1,50,000||Restricted to Rs. 1,50,000|
|Total Tax liability||4,60,200|
|Balance tax payable||2,15,800|
To avoid interest and penalty on late payment of tax, Preeti must pay advance tax instalments on respective due dates throughout the year for the balance tax payable of Rs. 2,15,800.
If existing employer has flexible policy for Moonlighting, then Preeti may declare the salary from Employer B in the income declaration to be submitted to Employer A and TDS will be accordingly deducted by Employer A. Preeti need not worry about advance tax payment in this case.
On a separate note, Provident Fund, if applicable, will be deducted by both employers. If the employee’s total contribution to Provident Fund exceeds Rs. 2.5 lakh for the year, interest on the contribution exceeding Rs. 2.5 lakh will be subject to tax. Interest on provident fund is credited by the provident fund office and accordingly, TDS on interest income if applicable would be deducted by the provident fund office.
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Now, suppose Zarna is working for Employer C and takes up work for Employer D on weekends. She receives professional fees from Employer D. Zarna can claim the expenses incurred for her business/profession such as meeting expenses, travel, office rent, electricity charges, salary to her staff, depreciation on laptop, etc. as a business expense and deduct it from the income offered for tax.
Alternatively, section 44ADA of the Income Tax Act allows a professional engaged in specified professions to offer only 50% of their professional fees to tax. This rule presumes that 50% of the professional fees received would be spent for business purposes and hence only the remaining 50% is treated as income from business/profession and taxed accordingly. Specified professions for claiming benefit u/s 44ADA are Legal, Medical, Engineering or Architectural, Accountancy, Technical consultancy, Interior decoration, Film Artist, Authorized representative, Company Secretary, Information Technology.
The professional fees received should not exceed Rs 50 lakh to claim the benefit of presumptive taxation u/s 44ADA. Let’s assume Zarna receives salary of Rs. 15 lakhs from Employer C. Her salary income chargeable to tax after standard deduction and 80C deductions would be the same as Preeti i.e. Rs. 13 lakh and TDS deducted will also be the same Rs. 2,10,600.
Suppose, Zarna receives professional fees of Rs 8 lakhs from Employer D and TDS is deducted @ 10% i.e. Rs. 80,000. However, Zarna’s income from professional fees will be taxed at @50% of gross income u/s 44ADA and hence only Rs. 4 lakh will be taxable. Hence, her total income subject to tax would be Rs. 17 lakh (13 lakh salary + Rs. 4 lakh professional income). Total Tax liability would be Rs. 3,35,400 out of which Rs. 2,90,600 is already deducted as TDS (salary TDS Rs. 2,10,600 + Rs. 80,000 TDS on professional fees). Hence tax payable would be Rs. 44,800.
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One should keep in mind that if the professional fees cross Rs. 20 lakhs then GST registration is to be obtained.
As seen in Preeti and Zarna’s case above, though their incomes are same, the tax liability for Zarna is significantly lower by Rs. 1,24,800. This benefit is due to presumptive taxation of professional fees. Wherever feasible, moonlighting income should be taken in form of professional fees rather than salary.
(The author is a Chartered Accountant and founder of Nimit Consultancy)