Do you have a second job going for some extra income? You need to be aware of the tax implications
Of late, moonlighting is in the news. IT majors, such as Infosys, TCS, and Wipro have warned their employees of delay or reduction in their variable pay for the first quarter of FY23 due to weaker margins, on account of moonlighting. IBM too called moonlighting, ‘unethical.’
Moonlighting saw a spurt in the wake of the covid pandemic which led to massive layoffs and/or pay cuts, and many salaried people had to take up additional gigs, while working from their home, in order to supplement their reduced income.
The rise in instances of moonlighting among working professionals in India, consequently led to compliance issues with companies.
In August, Swiggy, a food delivery platform, announced an industry first ‘moonlighting’ policy, wherein they were allowing their employees to simultaneously work on other projects under certain conditions after working hours. A few days after that, Rishad Premji, Wipro’s chairman, termed the concept of moonlighting as cheating.
What Is Moonlighting?
Moonlighting is essentially working for one organisation, and taking up extra responsibilities and duties at another, and mostly without the employer’s knowledge. It is a kind of side employment, or a side job to earn some extra money. This phrase became very popular when Americans started looking for second jobs in addition to their regular jobs, in order to earn some extra income.
In recent times, a number of companies, who cannot provide adequate compensation to their employees, have been encouraging ‘moonlighting’ to help the employees and to retain them into the organisation. Usually, in the terms and conditions of the contract, the employees are told to do a second job at a ‘non-competing’ company.
Tax Benefits
Says Anita Basrur, partner, Sudit K Parekh and Company LLP: “From a tax perspective, income from moonlighting (in any form/manner) will be included in the total income of the employee, and is taxable as per the applicable slab rates. Some employees may be taking up the additional job as a professional assignment, and this gives them the ability to claim expenses or even offer income under presumptive regime and pay a lower tax.”
The Indian tax laws do not specifically cover moonlighting tax.
Basrur, however, adds that “the same would get covered under the existing withholding tax provisions e.g., tax deducted at source (TDS) on salary, contractual payment or professional/technical fees.”
“It is to be kept in mind that in case income exceeds Rs 50 lakh on account of moonlighting income, the rate of surcharge on tax would increase to 10 per cent as against zero per cent when income is below Rs 50 lakh. This would be a big hit to the employee,” says Basrur.