News

Published: August 9, 2023
Updated: August 9, 2023

Unveiling the Spotlight: Income Tax Notices for Moonlighters

Income Tax Department's Vigilance on Additional Earnings

In a recent development, the Income Tax Department has initiated a drive to send notices to individuals who have earned supplementary income alongside their primary salary, but have neglected to declare this amount while filing their income tax returns (ITRs). The focus of these tax notices lies on those who have engaged in 'moonlighting,' referring to the practice of taking up secondary employment without the knowledge or consent of their primary employer. As reported by The Economic Times, over 1,000 notices have been dispatched for the financial years 2019-2020 and 2020-2021.

Unveiling the Concept of Moonlighting:
Balancing Two Jobs: A Taxing Situation

Moonlighting, in essence, entails engaging in a secondary job while concurrently holding a primary employment. This secondary job is often pursued without the awareness of the primary employer. The discourse surrounding moonlighting came into the limelight notably within the IT industry when Rishad Premji, Chairman of Wipro, brought attention to the issue.

Understanding the Essence of Income Reporting:
Maintaining Transparency in Income Reporting

Balwant Jain, an investment and tax expert based in Mumbai, explains that moonlighting occurs when an individual receives a salary from two distinct sources. It is imperative for taxpayers to disclose this information while filing their ITRs. Jain emphasises that income tax laws do not preclude individuals from working at multiple places simultaneously. He adds that the "Project Insight" initiative by the income tax department employs cutting-edge data analytics to identify tax evaders whose income declarations and expenses exhibit inconsistencies.

Why Tax Notices for Moonlighters?:
Encouraging Honesty in Reporting

The drive behind the income tax department's issuance of notices is rooted in the fact that many professionals who earn supplemental income alongside their regular salaries overlook mentioning these additional earnings while filing their taxes. These notices serve as reminders to include this extra income in their tax declarations. This emphasizes the crucial nature of honesty and accuracy when it comes to reporting earnings for tax purposes. According to Abhishek Soni, CEO and Co-founder of Tax2win, "This highlights how important it is to be honest and complete when reporting earnings for taxes."

Section 148A: A New Dimension in Tax Compliance:
Introducing Transparency with Section 148A

The Income Tax Act saw the introduction of Section 148A through Budget 2021. Explaining the implications of this clause, Balwant Jain clarifies that if the income tax officer receives information indicating that a taxpayer has omitted income subject to taxation for any assessment year, Section 148A comes into play. Under this section, the taxpayer is granted an opportunity to present their case before the officer.

Navigating Tax Implications:
Unravelling Complex Tax Scenarios

Moonlighting income can introduce intricate tax scenarios that taxpayers should be cognizant of. Archit Gupta, Founder and CEO of Clear, highlights that if moonlighting income is received as salary, it can complicate tax calculations. Employers generally compute an estimated taxable income figure for tax deduction at source (TDS), considering standard deductions and deductions under Section 80C. However, this can lead to excess deductions that taxpayers must address while filing their returns. Gupta advises taxpayers to calculate total taxes, deduct TDS, and make the necessary advance tax payments to avert additional financial obligations.

Navigating Dual Income Dynamics

The Income Tax Department's proactive approach in addressing moonlighting-related tax inconsistencies reinforces the importance of transparent income reporting. While moonlighting can provide financial avenues, it also underscores the need for diligent tax compliance. The introduction of Section 148A and the nuances of tax implications for moonlighting income exemplify the intricate landscape taxpayers must navigate. Ultimately, maintaining accuracy and honesty in tax reporting remains pivotal to a harmonious financial ecosystem.