Moonlighting and Income Tax Return Filing: Essential Guide for Side Hustlers
Moonlighting, or holding multiple jobs simultaneously, has become increasingly common. This trend is particularly prevalent in the wake of the COVID-19 pandemic, which spurred a rise in remote work opportunities. The flexibility afforded by work-from-home arrangements has allowed individuals to explore new skills and opportunities, often leading to additional sources of income. However, with this new income stream comes the responsibility of proper income tax filing. This article delves into why moonlighters should file income tax returns, the appropriate forms to use, and other crucial details.
Understanding Moonlighting Income
Moonlighters typically earn a combination of a regular salary and income from gig work. The income from gig work is classified under ‘income from business and profession.’ This classification is advantageous as it allows individuals to claim expenses related to their gigs, such as stationery, travel, and data charges, as business and professional expenses. This differs from ‘income from other sources,’ which does not permit such deductions.
Why Moonlighters Should File Income Tax Returns
- Legal Compliance: Filing income tax returns (ITR) is a legal obligation for individuals whose income exceeds the basic exemption limit. Non-compliance can lead to penalties and legal consequences.
- Avoid Penalties: As highlighted by Lubna Kably in a Times of India report, salaried employees and other taxpayers who are not required to undergo a tax audit must file their tax returns for fiscal 2024 by July 31. Late filing attracts a penalty of Rs 5,000, or Rs 1,000 for those with incomes not exceeding Rs 5 lakh.
- Carry Forward of Losses: Timely filing allows for the carry forward of losses to subsequent years, such as losses from the sale of securities, which can be used to offset future gains.
- Claiming Deductions and Benefits: Proper filing ensures that taxpayers can claim eligible deductions and benefits, thereby potentially reducing their tax liability.
Choosing the Correct ITR Form
Selecting the correct ITR form is crucial for accurate filing. For moonlighters, the choice depends on the nature and amount of their income:
- ITR-1 and ITR-2: These forms are not suitable for moonlighters with income classified as ‘business and profession.’
- ITR-3: This form is intended for individuals with income from business or profession. It is suitable for those whose side income is considered professional income.
- ITR-4: This form caters to individuals with total taxable income of Rs 50 lakh or less who have opted for the presumptive tax regime for their business income. Moonlighters earning less than Rs 75 lakh from consultancy gigs, with no more than 5% of this income received in cash, can also use this form. Under this regime, 50% of gross receipts are considered taxable income. However, ITR-4 cannot be used by taxpayers owning more than one house property.
Filing Form 10-IEA for the Old Regime
The 2023 budget declared the new tax regime as the default. This regime offers lower tax rates but requires taxpayers to forgo certain benefits, such as HRA and deductions under Chapter VIA (e.g., PPF contributions, eligible donations). Taxpayers with significant claims under these deductions might benefit more from the old regime.
- Form 10-IEA: Moonlighters who prefer the old regime must file Form 10-IEA online before the ITR filing due date. This form needs to be submitted only once, after which the old regime continues for subsequent years unless the taxpayer opts again for the new regime, which can be done only once more.
Failure to file Form 10-IEA will result in the automatic application of the new regime, and any tax benefits claimed under the old regime will be denied.
Conclusion
As moonlighting becomes more common, understanding the intricacies of income tax filing is essential for individuals with multiple income streams. Proper filing not only ensures legal compliance but also maximizes potential deductions and benefits. By choosing the appropriate ITR form and meeting all compliance requirements, moonlighters can manage their tax obligations efficiently and avoid unnecessary penalties.
[the_ad id=’4558′
