INTRODUCTION
The co-founder of Infosys, Mr. Narayan Murthy advised on February 23, “Please don’t fall into this trap of I will moonlight, I will do work from home, I will come to the office three days in a week.” [1] He suggested the workers steer clear from moonlighting. The word moonlighting, in the past few years, has become increasingly popular. But the first question which arises is, what exactly is moonlighting? In simple words, the term moonlighting mostly refers to a situation when a worker, despite having a job, does a second job which is typically done in secret. The situation of moonlighting peaked in India during the time of Covid lockdowns when the platform to perform moonlight increased from 142(the year 2010) to a whopping 777 in 2020, which also generated revenue of at least 51 billion dollars.[2] Recently the term gained prominence in Indian news in September 2022, when the tech giant Wipro fired 300 of its employees where the Executive chairman of Wipro, Mr. Rishad Premji termed moonlighting as plain and simple cheating. The sentiment is nearly the same among a very large mass of IT companies, although some companies like Tech Mahindra and some start-ups are more open to the idea.
The blog focuses on analyzing how moonlighting affects taxes and ways to ensure adherence to tax laws.
THE IMPLICATIONS OF TAXES ON MOONLIGHTING
In the Income Tax of India, there is no separate mention of moonlighting. Therefore an income for moonlighting is treated as a regular income. It is also necessary for a worker to report moonlighting as his income while filing an income tax return and any failure to do so will also result in necessary fines. Although there exists several provisions in Indian Laws which restrict moonlighting. For example, a provision where it is stated that it is prohibited for an employee to work in violation of standing orders that have been established and enforced by the employer.[3] It can therefore be concluded that although there does not exist a mention of moonlighting in Indian Income Tax laws, there is a way for the government to collect taxes and also punish any individual who refuses to pay the taxes of the income earned through moonlighting.
HOW TO ENSURE COMPLIANCE OF MOONLIGHTERS WITH TAX LAWS?
A moonlighting individual needs to pay his or her taxes to avoid facing penalties, fines, and even lawsuits. With the topic of implications of taxes on moonlighting covered, it is time to look for how the compliance of moonlighters regarding tax law can be ensured. These are the following ways in which the same can be ensured:
Reporting Income – It must be extremely important for any moonlighting individual to report any income earned through a side job no matter how small or insignificant such income is on tax returns. The failure to do so must be punishable by either a penalty or legal action. II. Tracking
Cash Flows – The track of all income and expenditure-related activities done with the use of money generated through moonlighting must be recorded. It includes revenue received and expenses that occurred.
Use of Technology – There is no denying the fact that a lot of things are possible with the use of modern software. The same technology can also be used by an individual to keep a track of his or her cash flows.
EXEMPLARY CASE STUDIES
Below are a few hypothetical case studies that can help readers understand the situation in a significantly better way.
Karan, Freelance Author: Karan is a freelance author from Mumbai, India who also works as an assistant professor at a university. He earns around 50,000 dollars per year from his freelance story writing work. But, Karan is completely ignorant about the fact that taxes should be paid regarding moonlighting in India. Such a scenario was detected by the Income Tax department of India and Karan was penalized with a huge penalty alongside his tax. He was thus made to pay a penalty alongside interest. This case suggests the requirement and importance of reporting all the incomes, which includes the income which is earned from moonlighting. Failure to do the same may cause unnecessary loss.
Jane Doe, Security Guard: Jane Doe worked as a full-time accountant in Bangalore. In her free time, she worked as a security guard to save more money for her plan of doing an MBA from a reputed Ivy League university. She was aware of the taxes she had to pay as a moonlighter and did her research clearly on the topic before doing so. She paid her taxes completely while also mentioning her moonlighting. Therefore, no such issue arose for her when she was asked by the tax officials for penalties or interest as she paid all her taxes on time.
The above case highlights the need of understanding the laws related to moonlighting before performing the said activity. Any expense related to part-time work can be deducted from the additional earned income. An individual must maintain proper records of her or her income and expenditure.
Yami, Cake designer: Yami is a full-time game designer based in Mumbai. She also moonlights as a cake designer. From moonlighting alone she earns nearly 60,000 rupees a month. Unaware of the fact that she had to file an income tax return for the money she earned from moonlighting, Yami didn’t file her moonlighting taxes. Thus, she was called by the Income Tax Department to inform her about paying taxes and the extra which occurred due to not paying it on time.
CONCLUSION
Moonlighting, as fancy as this term may look to the youth who wants to work part-time to earn money, there exist some risks with it regarding the payment of taxes. Therefore it is extremely important for someone planning to moonlight to know all about the related taxes for the same task. By taking necessary precautions one can successfully moonlight and also avoid the headache which comes when one doesn’t pay taxes.
Author(s) Name: Raunak Raj (Chanakya National Law University, Patna)
Reference(s):
[1] https://hr.economictimes.indiatimes.com/news/workplace-4-0/dont-fall-into-the-trap-of-moonlighting-work-from-home-narayana-murthy/98214227
[2] https://economictimes.indiatimes.com/news/new-updates/how-wipro-caught-moonlighting-this-viral-tweet
[3] Industrial Employment (Standing Orders) Act 1946
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