Moonlighting may have tax implications warn CAs and Income Tax Authorities

Moonlighting has been a topic of discussion for a while, it has drawn varying responses especially from the IT sector. However, if you are currently moonlighting or having a second job then there are certain tax restrictions that you will have to follow. The tax authorities have asked employees to declare any additional income while filing their tax returns and pay the applicable amount.

Moonlighting simply means taking a second or additional job while being on a company's payroll. These second jobs bring additional income and will be liable to tax reduction.

R Ravichandran, principal chief IT commissioner, Tamil Nadu, Puducherry and Kerala said that if any company or individual pays over Rs 30,000 to as a professional fee or as a contract job then taxes at source (TDS) shall be cut at the applicable rate. This is according to Section 194C of the Income Tax Act, which states that any individual who gives a fee to a residential individual for carrying out contract work must deduct TDS.

In addition it also states that the deduction should be done at the time of crediting of the amount to the account of the contractor or when the payment is done through cash or cheque or draft.

A person is liable to deduct TDS at a 10 per cent rate while making payments of more than Rs 30,000 to a resident states Section 194J of the IT Act. TDS will also be deducted when the total amount of the payment exceeds Rs 1 lakh in a financial year. Payments here include the amount charged as royalty, technical service fee, professional service fee, or non-compete fee under Section 28(VA) of the Income Tax Act.

If an employee hasn't declared the additional income during tax filing and it is detected later then the IT department will impose penalties and initiate an inquiry according to the Section 148A of the IT Act.