Moonlighting has become a well-known term after cases of tech professionals from multiple major companies indulging in it came to light. The term refers to having a second job in addition to your primary job, usually in secret. While there can be financial and career benefits to having a side job, your side business can also be subject to heavy taxes. It is essential to know what kind of taxes apply to your moonlight income to avoid being fined by the Income Tax Department later on.
According to De Munt, income from business or professional services can be taxed under the heading ‘PGBP-Profit from Business and Profession’. While business expenses, such as travel expenses, can be reduced from this income, the remainder of the amount is taxed at the applicable plate rates. If the tax payable exceeds Rs 10,000, the taxpayer is required to pay tax in advance in four installments of 15 percent, 45 percent, 75 percent and 100 percent.
On the other hand, if the second job falls under any of the occupations listed in section 44ADA of the Income Tax Act, and the income is less than Rs 50 lakhs, the taxpayer can choose to pay only half of his income to pay tax. In this case, however, they cannot declare the costs because they have already received a flat-rate reduction of 50 percent. They also only have to pay the last installment of input tax on March 31.
Tax calculations get more complicated when taxpayers receive their side income as salary. This justifies the person updating to take extra care when filing their returns.
To deduct tax deductions at source (TDS), employers usually draw up an estimated taxable income.
For example, if a person receives a salary from both jobs, he is on the payroll of two employers. Both employers will consider a standard deduction of Rs 50,000 and deductions below 80C. However, both employers determine the total tax liability based on the lower tax brackets. This means that the TDS by any employer will be lower than the full tax liability of the side job employee.
To avoid any additional fines or charges, the employee must periodically advance tax installments for the total liability.
If you are engaged in undeclared work, consult a professional on how best to manage your tax payments.
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