Moonlighting Tax Implications: Here's How A Side Hustle Affects Tax Deductions

Tech professionals moonlighting, taking additional assignments outside their regular jobs, should get ready to pay up taxes. An extra income earned from a side hustle qualifies for tax deductions and must be disclosed when filing tax returns. Not doing so could invite actions from the IT department. Speaking to the Economic Times, R Ravichandran, principal chief IT commissioner, Tamil Nadu, Puducherry & Kerala, said that a person or company paying a professional fee (Section 194J) or an amount of over Rs 30,000 to someone as remittance for their service in a contract job (under Section 194C of IT Act, 1961) are liable to tax deduction at source. Tax deducted at source (TDS) also applies in case of payments under these categories being made to the same person and exceeding Rs 1 lakh in a financial year. Such remittances fall under Section 194C.

The recipient is legally obligated to declare such income in their tax returns and pay the applicable tax rate. In India, TDS is a specific amount deducted when a particular payment, for instance, salary, commission, professional fees, or rent, is made.

Amarpal Chadha, tax partner and India mobility leader, EY India, told the news outlet, “Given that the Form 26AS, Annual Information Statement and Taxpayer Information Summary is quite elaborate in covering any payments received and taxes deducted in a financial year, non-disclosure or non-reporting of such income in the tax return will lead to a mismatch in income reported by the individual versus the data available with the tax authorities.”

If undeclared income is detected in future, the IT department will initiate an inquiry under Section 148A of the IT Act. Depending on the results of the investigations, a person might be subjected to penalties.

People engaging in moonlight, therefore, have to consider the consequences of tax alongside potential repercussions at their primary place of employment.

The increasing trend of moonlighting in the tech industry came into the limelight after Wipro fired 300 employees for an “act of integrity violation”. The employees were found to be working on other assignments from competitor firms while being employed by the tech giant. Wipro Chairperson Rashid Premji termed moonlighting as ‘cheating.’

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