ITR: What is moonlighting? Why it is under the Income Tax Department’s scanner

As the workforce navigates new realities, "moonlighting" has emerged as a buzzword, describing the practice of individuals taking on additional work alongside their primary job. This phenomenon has gained traction, especially during the pandemic, with remote work opening doors to supplementary income streams.

With the changing dynamics in the jobs market, especially in light of the job losses and layoffs, many employees are resorting to any additional means to earn money alongside their existing job. As moonlighting involves additional income, it has also come under the scrutiny of tax sleuths.  

It’s important to know how moonlighting could invite potential tax troubles.  

Income Tax Notice to salaried taxpayers for moonlighting

A significant number of notifications have been dispatched by the Income Tax Department, specifically targeting those indulging in moonlighting. A notable chunk of these notices were issued in the financial years 2019-2020 and 2020-2021. Through automated systems, the tax authorities have successfully pinpointed instances where individuals omitted disclosing their added earnings from other sources, especially assignments or projects outside their regular jobs. 

Notably, this trend has gained steam among professionals in fields like IT, accounting and management, to name a few, who were juggling remuneration from diverse quarters. Tax authorities have yet to send the notices for the more recent financial years, but expect the number of notices to increase AY 2023-24 as well.

Undisclosed earning is the cause of worry, not moonlighting

Moonlighting per se isn't the heart of the matter. Rather, it's the failure to come clean about the extra income amassed through moonlighting stints. Engaging in secondary employment, or moonlighting, isn't unlawful or against the tax laws. Individuals who've misreported their earnings, sometimes hiding sums even double the amount earned from their primary job, are under scrutiny of the I-T department. This underscores the vital importance of truthfully disclosing every income source, guaranteeing adherence to tax statutes.

Moonlighting income: Business or professional earnings

For taxpayers juggling moonlighting gigs, it's advisable to declare this supplementary income either as business earnings or professional income, based on the nature of the second job. Taking this proactive stance ensures transparency and aligns with tax regulations. Neglecting to report additional income from other assignments or projects could trigger tax notices and subsequent penalties after scrutiny.