Moonlighting: Why income tax department is sending notices to these taxpayers

The Income Tax Department is sending notices to people who have earned extra money apart from their salary but failed to mention the amount while filing income tax (ITR) returns. Tax notices were sent to people who earned extra from the ‘moonlighting’. More than 1,000 notices were sent for the 2019-2020 and 2020-2021 financial years, according to the report published.

What is Moonlighting?

Moonlighting means taking up another job in addition to one’s primary employment. The second job is usually taken without the employer's consent at their regular job. The debate around moonlighting grabbed headlines in the IT industry ever since Wipro head Rishad Premji red-flagged the issue.

Moonlighting is basically when a person receives a salary from two places, and taxpayers are expected to mention the same when filing their ITR, said Balwant Jain, an investment and tax expert in Mumbai. He further added that "income tax laws do not forbid you from working at two places."

“Project Insight by the income tax department has the latest data analysis which helps the department to identify tax evaders whose income tax returns and expenses do not match what they have shown up,” said Balwant Jain. 

Why does the Income Tax Department is sending notices to Moonlighters?

“Many professionals have earned extra money on top of their regular salary (also known as moonlighting income), but they forgot to mention this income when they filed their taxes. The tax authorities have now sent them notices reminding them to include this extra income. This highlights how important is to be honest and complete when reporting earnings for taxes,” said Abhishek Soni, CEO and co-founder of Tax2win.

Section 148A of the Income Tax Act

In the Budget 2021, the government introduced Section 148A in the Income Tax Act. Balwant Jain explained this clause that if the income tax officer receives any information that the taxpayer has evaded the income of any assessment year in which the tax is to be paid. “Under Section 148A, the assessee has the opportunity to be heard by the officer,” said Balwant Jain.

Tax implications from moonlighting

Income from moonlighting can lead to complex tax situations that the taxpayer should be aware of.

“If taxpayers receive their moonlighting income as salary, it can complicate tax calculations and the taxpayer may need to be very careful when filing their returns. For deducting TDS, employers draw up an estimated taxable income figure. In such an estimation, both employers are considered standard deduction of Rs. 50,000, while the taxpayer can claim it only once. They may also consider the 80C deduction, which may exceed a maximum of Rs 1.5 lakhs in total. While filing taxes, the taxpayer will have to make these changes and bear the brunt of additional taxes and interest. To avoid this, taxpayers should calculate the total tax, subtract the tax withheld (TDS) by the employer and pay the balance as tax advances,” said Archit Gupta, Founder and CEO of Clear.

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