The Income Tax Department recently took measures to address the issue of individuals neglecting to report additional income from side hustles on their Income Tax Returns.
Reetu | Aug 17, 2023 |
Income Tax Department sent more than 1000 notices on Moonlighting Income for FY 20 and FY 21
The Income Tax Department recently took measures to address the issue of individuals neglecting to report additional income from side hustles on their Income Tax Returns (ITRs).
Moonlighting is the practise of working a second or third job in addition to one’s principal job, frequently without telling tax officials. The tax department has begun sending letters to individuals who have failed to declare their additional incomes in an effort to reduce tax evasion.
According to reports, the notices are being sent to individuals whose primary source of income is their regular employment, but who have neglected to mention their supplementary earnings in their ITR filings.
Because most payments were made online, including some from offshore accounts, detecting these undeclared revenues was made feasible through rigorous data analysis.
Many IT, accounting, and management experts got monthly or quarterly payments from various organisations, according to an investigation. Nonetheless, they only reported income from full-time employment on their tax filings.
The initial round of notices targeted people whose yearly undisclosed payments ranged between Rs 5 lakh and Rs 10 lakh. These notices were largely issued for the financial years 2019-2020 and 2020-2021. Over 1,100 notices have already been sent to individuals who failed to report their side income.
It is vital to highlight that the focus of these income tax notices is not exclusively on moonlighting; the emphasis is mostly on erroneous income declaration. Individuals were discovered to be underreporting their income in certain circumstances, with the unreported amount being twice that of their declared pay.
The tax authorities is also looking into cases of cash payments.
During the pandemic, the practise of moonlighting acquired tremendous hold, notably in the IT sector. With remote work becoming the norm, many people sought part-time jobs to supplement their primary salaries. However, it is critical to recognise that working part-time or moonlighting is neither unlawful or against the law.
The tax department’s efforts are focused on ensuring correct income disclosure and compliance with tax legislation.
Individuals who are employed concurrently by many employers can utilise Form 12B to report information of their salary from each employer to comply with income tax law. This enables proper tax deduction by taking into account the individual’s entire earnings.
Individuals who participate in side hustles and make money through fees rather of salary can also benefit from Section 44ADA of the Income Tax Act. This rule allows certain experts to report just half of their fees for tax purposes, assuming the other half is a business expenditure.
This has the potential to dramatically cut taxable income. It is vital to highlight, however, that this provision applies to professionals who receive supplemental professional income in addition to their salary, and it is critical to tell the employer about these other earnings for accurate TDS computation.
Failure to disclose additional income from side hustles may result in fines and interest owing to the failure to make deductions that should have been made through TDS. Transparent reporting of all income, including profits from side hustles, is required to meet legal duties and maintain financial integrity.
It is critical to note that the tax department’s measures are intended to guarantee correct income reporting and compliance with tax rules, not to discourage moonlighting.
In conclusion, individuals engaging in moonlighting activities must be vigilant about disclosing their additional income in their tax returns. They can avoid penalties and assure tax compliance by doing so.
It is important to speak with tax specialists or seek help from the tax department to understand the precise reporting requirements and advantages available for individuals engaged in moonlighting.
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