Income tax

Undeclared work for additional income? Know the income tax rules

Major IT companies like Wipro, Infosys and TCS have recently raised concerns about moonlighting. The debate around moonlighting has been making headlines in the IT industry ever since Wipro chairman Rishad Premji flagged the issue on Twitter, calling it “cheating”. Moonlighting has experienced a surge following the covid-19 pandemic.

What is moonlight

Simply put, in the dark means having another job in addition to your main job. The second job is usually taken without the consent of the employer to his regular job

There is no separate mention of moonlighting in income tax. The income of the second employer can be received either in the form of salary or in the form of professional fees. The Income tax (IT) the authorities have warned that undeclared work can have tax implications, The economic period reported.

What are the tax implications of undeclared work?

Archit Gupta, Founder and CEO of Clear, said moonlighting earnings could lead to complicated tax situations that the taxpayer should be aware of.

Undeclared work income received as business income or professional fees

Commercial or professional income may be taxed under the heading “PGBP-Business and Professional Profits and Gains”. Expenses incurred during the second job, such as travel expenses, laptop depreciation, etc., can be considered business expenses and deducted from their income. The remaining amount will be subject to tax at the applicable slab rates. If the tax payable exceeds 10,000, taxpayers must pay the withholding tax in four instalments 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, the taxpayer then has the option of paying tax on only 50% of his income. They cannot claim the expenses in this case because they received a 50% lump sum reduction. In addition, they are only required to pay the last installment of the advance tax on March 31.

Undeclared work income received as wages

If taxpayers receive their undeclared income in the form of wages, it can complicate tax calculations and the taxpayer may have to be extra careful when filing their returns. To deduct the TDS, employers establish an estimate of the taxable income. In such an estimate, both employers consider the lump sum deduction of Rs. 50,000, while the taxpayer can only claim it once. They may also consider the 80 C deduction, which may exceed the maximum limit of 1.5 lakh in total. When filing taxes, taxpayers will have to make these changes and bear the brunt of additional taxes and interest. To avoid this, taxpayers must calculate the total taxes, subtract the tax deducted (TDS) by the employer and pay the balance in installments. Here is an illustration for better understanding:

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Tax consequences of undeclared work.

In this case, the TDS was deducted by the employers on a total income of 18,50,000. On the other hand, the tax is due on 20,00,000. The taxpayer must pay withholding tax on the additional income of 1,50,000. Failing this, he will have to pay a tax on 1,50,000 with interest.

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