Moonlighting? Know its tax implications

The latest buzzword in India’s Silicon Valley is ‘moonlighting’ meaning taking up side hustles by engaging in a second job simultaneously or after office hours but secretly. However, as Buddha said: three things cannot be long hidden - the sun, the moon and the truth.

In September, Wipro terminated about 300 employees after discovering that they were working directly for one of its competitors. Infosys also followed suit but stopped at warning their workforce by sending an internal note - ‘no double lives’, and made it very clear that dual employment was not permitted the violation of which may lead to termination of the employment. IBM India, too, termed it as an unethical practice. Besides calling it an ethical issue, TCS said it was against its core values and culture. No action has been taken against their employees so far. However, Tech Mahindra, another top tech has backed the concept stating that ‘it is necessary to keep changing with the times’.

Also Read: Quiet quitting and moonlighting are real - workplaces need to adapt

Currently, the debate is going on whether it is legal, ethical and practical in the Covid-19-driven world order.

But what would be the likely tax implications of second income on a 'moonlighter'? Let's understand:

Received as Salary

If an employee is in receipt of the second income as a salary, then the receipt will also be subject to Standard Deduction, Section 80C deductions, monthly tax deducted at source (TDS), quarterly Advance Tax and Provident fund contributions, if applicable. Since the maximum cap for the initial two deductions is fixed at Rs 50,000 and Rs 1,50,000 respectively, the employee does not have any other option than giving up those tax benefits, though deducted. With this, the tax outflow will increase considerably.

Received as Professional Fee

If an employee is in receipt of the second income as a professional fee or consultancy fee, then they are taxed under the head 'Profit & Gains from Business and Profession' after deducting certain expenses incurred to earn such fees, say travel costs, electricity charges, depreciation on laptops used therein. In this case also, if the employee's total tax liability exceeds Rs 10,000, it attracts quarterly advance tax. However, if the profession is listed under Section 44ADA of the Income Tax Act, 1961 and the professional income is less than Rs 50 lakhs, the employee can opt for the ‘Presumptive Taxation Scheme’ and offer only 50% of his total professional fee as the income, without claiming any expenses as deductions and remit only the last or fourth quarter’s advance tax due in the month of March.

Received on independent part-time basis

Apart from these two, there is one more class of employees generally engaged in self-employment on an independent part-time basis and going the extra mile without reporting to someone or joining the other entity. For instance, schoolteachers and college lecturers take private tuitions, accountants take bookkeeping and other accounting assignments, post-office and insurance agents provide their doorstep services for a commission, advertising and digital marketing experts use their skills for a select few customers during weekends, holidays or even after office hours. In this case, also, their incomes or commissions are subject to said taxes and are required to show it under the head 'Income from other Sources' and pay the requisite income tax while filing their ‘Return of Income’.

Also Read: Love it or hate it, moonlighting is here to stay

Legal perspective

In 2018, the Bombay High Court in Lupin Ltd v Sri Satyendra Yadav held that engaging in dual employment without the employer’s permission was illegal. In 2016, the Punjab and Haryana High Court in Gulbahar Singh v Presiding Officer Industrial Tribunal upheld an employee’s termination on the grounds of dual employment. Interestingly, exact 39 years years ago, in October 1983, the Supreme Court in Glaxo Laboratories India Ltd v Labour Court opined that employers regulating employee behaviour beyond office hours amounts to a contract of slavery and not a contract of service. Generally, the onus lies on the employer to prove that an employee acted against the interest of the company to uphold the termination or the court will hold in favour of that terminated employee.

Concluding remarks

It is pertinent to note here that moonlighting is not a new thing and is a usual restriction clause on dual employment that one can find in an employee’s appointment letters. Also, this practice is seen not only in IT/ITeS but also in other formal and informal sectors. Only after Swiggy’s announcement of the industry’s first policy allowing its employees to take up additional jobs, the issue has drawn wider attention.

Since the Central Government is likely to replace the entire gamut of labour laws with simplified Labour Codes from early 2023, it will be a suitable time for the government to step in and address these emerging controversial issues, to avoid future litigations, brewing mistrust between employers and employees and safeguard the interests of all the concerned.

(The author is the founder and chief executive officer of Shree Tax Chambers)