Moonlighting, driven by side hustles and remote work opportunities post Covid-19, requires moonlighters to carefully choose the right ITR form, consider the presumptive tax regime, and submit Form 10-IEA online for tax benefits under the old regime

Moonlighting and ITR filing: Why moonlighters should file income tax return, form to use, other details

Moonlighting refers to holding multiple jobs simultaneously, often involving a second job outside of regular working hours. The phenomenon of side hustles has gained significant traction in recent years. This trend has been fueled by the increased availability of remote work opportunities, especially following the outbreak of Covid-19. The shift to work-from-home arrangements not only provided individuals with more flexibility and time but also encouraged the acquisition of new skills and enhanced utilization of technology. Furthermore, as companies adapted to the new normal, they increasingly recognized the benefits and potential of remote work arrangements.

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Moonlighting incomes

Moonlighters often earn a combination of regular salary and income from gigs. The income from gigs is categorized as 'income from business and profession.' This classification allows individuals to claim expenses such as stationery, travel, and data charges for consultancy gigs as business and professional expenses, instead of 'income from other sources.'

Also read: Moonlighting plans? Here is what you should know and a few well-paying side gigs

ITR filing for moonlighters

Lubna Kably, in a recent news report in the Times of India, writes that these individuals need to be careful in choosing the right income-tax return and also in meeting the new compliance requirements if they are opting for the old tax regime.

"Salaried employees and those taxpayers who are not obligated to get a tax audit done have to file their tax return for fiscal 2024 by July 31. Late filing means a penalty of Rs 5,000 (Rs 1,000 for those whose income does not exceed Rs 5 lakh), in addition carry forward of losses to subsequent years, such as that arising on sale of securities is also denied," stated the Times of India report.

Choose the ITR form carefully

Remember this: Some people who work side jobs might be getting paid as employees but for many, the money they earn from gigs is considered business or professional income. They can't use Form 1 (ITR-1) or ITR-2 in this situation. Instead, they have to choose between ITR-3 and ITR-4, which are for people with business or professional income.

ITR-3 is for people with business income. ITR-4 is for those with taxable income of Rs 50 lakh or less who have chosen the presumptive tax regime for their business income. Moonlighters who have worked as consultants and earned less than Rs 75 lakh can also choose the presumptive tax scheme, as long as no more than 5% of their income was received in cash (outside of banks). In this scheme, 50% of the gross receipts will be considered as taxable income. However, ITR-4 cannot be used if the taxpayer has more than one house property.


File Form 10-IEA if opting for the old regime

"The new tax regime offers lower tax rates, but the taxpayer has to forgo tax benefits for HRA and deductions under Chapter VIA (eg: for eligible investments such as PPF or for eligible donations). It is possible that those having significant tax benefit claims may be better off under the old regime," stated the ToI report.

Budget 2023 announced that the new tax regime will be the default tax regime. Taxpayers who have "income from business or profession" and prefer to file their tax return under the old regime must submit Form 10-IEA online before the due date for the income tax return.

Ketan Vajani, a chartered accountant told ToI, “Salaried taxpayers who do not have any business or professional income do not have to submit this form. Moonlighters who have ‘income from business or profession’ will need to file Form 10-IEA, if they wish to opt for the old regime. In their case, the old regime will continue for the subsequent years also. In any subsequent year, if they want to again opt for the new regime, they can do so, but such an option can be exercised only once.”

Amarpal Singh-Chadha, tax partner and India mobility leader at EY-India informed Times of India that if taxpayers with business or professional income do not file Form 10-IEA the new regime will be considered, and all tax benefits claimed will be denied.
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This story originally appeared on: India Times - Author:Faqs of Insurances