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Are you moonlighting to supplement your income? Do Consider Taxation

Moonlighting has recently gained popularity. IT behemoths like Infosys, TCS, and Wipro have informed their staff that variable compensation will be delayed or reduced in the first quarter of FY23 due to lower margins due to moonlight. IBM also referred to moonlighting as ‘unethical.’

Following the covid epidemic, which resulted in major layoffs and/or salary cutbacks, many paid workers were forced to take on extra gigs while working from home to supplement their lower income.

The surge in cases of moonlighting among working professionals in India has resulted in compliance concerns with organizations.

Swiggy, a food delivery company, unveiled an industry-first’moonlighting’ policy in August, enabling their staff to work on other projects after hours under specific conditions. A few days later, Wipro’s chairman, Rishad Premji, called moonlighting “cheating.”

What Is Moonlighting?

Moonlighting is effectively working for one organization while taking on additional tasks and obligations at another, usually without the employer’s knowledge. It is a type of side work or extra income. This expression gained popularity when Americans began seeking second occupations in addition to their main work to supplement their income.

In recent years, several organizations that are unable to give enough remuneration to their employees have encouraged’moonlighting’ to assist the employees and maintain them in the organization. In most contracts, employees are required to have a second job at a ‘non-competing’ firm.

According to Anita Basrur, partner at Sudit K Parekh and Company LLP, “from a tax standpoint, revenue from moonlighting (in whatever form/manner) would be included in the total income of the employee, and is taxed as per the appropriate slab rates.” Some workers may take on the additional task as a professional assignment, which allows them to claim costs or even offer income under the presumed system and pay a reduced tax.”

The Indian tax rules do not directly address moonlighting tax.

According to Basrur, “the same would get covered by the existing withholding tax laws, such as tax deducted at source (TDS) on salary, contractual payment, or professional/technical fees.”

“It should be noted that if income reaches Rs 50 lakh as a result of moonlighting, the rate of tax surcharge increases to 10% from 0% when income is less than Rs 50 lakh.” “This would be a significant blow to the employee,” Basrur argues.

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