Moonlighting Employees Under Income Tax scanner: Many employees work second jobs while still employed by their current company in order to supplement their income. The Income Tax Department sent them notices because they were not declaring their income on tax returns despite earning more than their regular salary. According to the sources, the majority of these notices pertained to the fiscal years 2019–20 and 2020–21.
Moonlighting or working for someone else outside of the company where they are employed full-time can sometimes result in income that is greater than their regular salaries.
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Since the majority of the payments were made using online payment gateways, the Income Tax Department’s advanced data analysis was able to identify some transactions that were made using foreign accounts.
A senior official claims that they have found a significant number of these cases in the management, accounting, and IT fields. The experts in these fields were being paid on a monthly or quarterly basis by more than one business. However, the part-time workers were failing to report this income on their tax returns. They only reported income from their full-time job in their tax returns.
Individuals whose average undeclared annual income ranged between ₹5 lakh and ₹10 lakh notices were sent in the first phase. In the fiscal years 2019-2021, there were more such cases found, according to officials. There are 1100 professionals so far who have been sent notices by the department.
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The organizations themselves have in a number of cases informed the department about their employees and claimed to receive services from them, according to the officials. They have also provided proper Permanent Account Numbers (PAN).
The number of such cases is expected to rise in the financial year 2021-22 as the department has yet to analyze the data for that FY.
The official went on to say that professionals were getting notices more for misrepresenting their income than for moonlighting. Even in some instances, they are making twice as much money as they reported earning on their tax returns. The tax department does not track payments made in cash. During the pandemic, moonlighting became quite popular and most of the employees were from the IT sector working from home during that particular period.
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Section 148A of the Income Tax Act
In Budget 2021, the government introduced Section 148A in the Income Tax Act. If the income tax officer receives some information that the taxpayer has escaped income for any assessment year on which tax is payable. Under section 148A, the assessee gets a chance to be heard by the officer.
Tax implications from moonlighting
“If taxpayers receive their moonlighting income as salary, it can complicate the tax calculations and the taxpayer may have to be extra careful while filing their returns. For deducting TDS, employers draw up an estimated taxable income figure. In such an estimation, both employers consider the standard deduction of Rs. 50,000, whereas the taxpayer can claim it only once. They may also consider the 80C deduction, which may exceed the maximum limit of ₹1.5 lakhs in total. While filing taxes, the taxpayers will have to make these changes and bear the brunt of additional taxes and interests. To avoid this, the taxpayers must compute the total taxes, subtract the tax deducted(TDS) by the employer and pay the balance as advance tax installments,” said by some experts.
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