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Everything about Moonlighting- Tax on Additional Income

Updated on: 26 Dec, 2022 10:56 AM

What is Moonlighting? Is it ethical? What is the tax on additional income? Or what is the tax on moonlighting income? How tax on passive income affects it? Suddenly, a ray of light hit this debate when the IT giants – such as Wipro, TCS, Infosys, HCL Tech, and other India's leading technology companies caught some fraudulent employees executing Moonlighting last year. Many tech leaders found this activity totally unbearable. They raised their concern about the consequences of Moonlighting or dual employment. Some of them completely denied any outside job for their salaried employees and included policies to escape it. Whereas a few like C P Gurnani – CEO of Tech Mahindra, Swiggy, etc., speak out in favor of employees involved in Moonlighting.

Read on to learn what Moonlighting is all about. What are its consequences on income tax on additional income or tax on second income? Is it legal or illegal? Everything here, in this shot. & then get personalized Tax Planning Solutions.

What is Moonlighting?

Employees who are not happy with their present monthly income and desire to earn more. For them, Moonlighting practice becomes a free choice.

At this junction, let's assume that someone who is a full-time employee and is committed to working under one employer or company starts working for some other employer (company) without taking consent from his first employer (obviously, by providing all details about his second job), then such secret work practice is known as Moonlighting. But beware of tax on additional income or tax on second income! Also, understand Salary Income and its components.

Is Moonlighting for additional income Ethical?

Although there is no law against Moonlighting, there are two different perspectives on Moonlighting waving in the Indian market. One view is of the employees willing to earn extra income. The other is of employers or companies who find it unbearable and unethical. Notably, many organizations or companies have started adding a clause related to Moonlighting policy in the "Offer Letter" of prospective employees so that they can cease the consequences and cater to their productivity and sale.

As such, there is no specific law for it, but rather some clauses are introduced for dual employment. Further, if you have signed any contract that restricts you from working outside, then the employer can take appropriate actions against you, even terminate the employment.

What are the Advantages of Moonlighting?

Since the pandemic strike, WFH or hybrid working has escalated like never before. Weighing the uncertainty of the marketplace, employees started looking for a "second income" to sustain their lifestyles and expenses. To meet the financial requirements, employees began working for their second employer on half time or hourly basis without knowing the consequences of tax on second income. They earn additional income on a regular basis. And here comes the benefits of Moonlighting by employees surfaced that fulfill their financial expectations.

What are its Disadvantages? How can tax on moonlighting income affect?

Employees who are working in one company can provide their services to their competitors or rival companies. As a result, the company may encounter a significant financial loss. Additionally, Moonlighting has adverse effects on the productivity and efficiency of the person involved. As a result, the productivity of the company gets affected. That's why major companies ensure that there is no other source of a second income. For employees who are doing Moonlighting, it would be advisable to know about the complexities caused by the tax on income from secondary source.

Why are Tech Companies against Moonlighting?

The majority of companies and tech leaders are against Moonlighting practices in India. Salil Parekh, CEO of Infosys, Rishad Premji, Chairman of Wipro, Milind Lakkad, Chief HR Office of TCS, and other IT leaders took hold of the anti-moonlighting stand with a strict attitude. A huge list of technology companies wants their employees to work whole heartily for their organizations only, not for some second or third employer. In addition, if someone is found guilty, companies are strict about taking action against such an employee.

How to Catch Moonlighting Employees?

There are so many top-notch software and tracking devices available in the market to track remote computers and monitor desktop activity. Companies start deploying such relevant software on-premises and on WFH desktops.

How can Companies Catch Moonlighting by Employees?

The company's HR owns a bonanza. He can prevent fraudicius activity and track the Moonlighting by employees. But how? Generally, every salaried employee has his own unique 12-digit UAN- Universal Account Number. Using this, the HR of the company can easily find the name of the employees who have two EPF (Employees' Provident Fund) accounts. Likewise, he can catch the employees who are secretly working for other companies. Wipro, TCS, and many other companies caught their employees doing Moonlighting.

Note: Read our Comprehensive Guide On TDS In India.

What are the Tax Implications of a Second Job in India? Or what is the Tax on Additional Income?

The complicated situations of tax on second income or tax on moonlighting income are as accurate as they are. Indian authority frames some strict policies on tax on additional income structures as below:

  • As a salary In case an additional income earned from Moonlighting or a second job is received as a salary without any consent of the primary employer. Then the taxpayer may lead to complexity of tax on second income as the aggregated tax liability would be higher than the total TDS amount deducted by both employers. Here, his overall income is subject to lie in the tax slabs in accordance with the respective salaries. The 80C deduction limit of 1.5 lakh, a standard deduction of Rs. 50,000, PF contribution, and other tax benefits are key factors that unknowingly raise tax complexity for the employee who is cheating and secretly started working with another employer. He will be liable to pay tax on additional income in advance.
  • As a professional fee Further, if someone is getting his additional income as a professional fee, then the taxpayer is liable to pay his tax on second income payables before their respective due dates, i.e., in advance. Otherwise, a hefty amount as a penalty he has to pay on his late payments. Moreover, his payable tax income is computed under "Profit & Gains from Business and Profession" labeled head after deducting the gross receipts of certain expenses such as travel expenses, depreciation of assets, internet & electricity bills, etc.
    Suppose someone is getting more than Rs. 30,000 as a professional or business fee, then TDS will be applicable on his/her extra income. Other than this, if someone offers the services that lie down in the specified professional category listed in section 44ADA and earns less than Rs. 50 lakh, then 50% of his overall professional fee is taxable without claiming any deduction of expenses.
  • As a part-time self-employment In this category, employees receive their extra income for serving other people on a freelance or part-time basis. They are required to pay their extra income tax on additional income (tax on second income) under the head- "Income from other Sources" at applicable slab rates.

What do you mean by Dual Employment in India?

Hybrid work culture fuels up dual employment culture in India. In this, a fraudulent full-time employee works for two and more employers without the consent of his first employer. To put restrictions on this cheating, the Indian authority brings some tax on additional income and laws on second income coming from dual income scenarios.

What are Dual Employment laws in India?

Indian law formally defines rules and laws for employment conditions under the following amendments and acts in national policies for the well-being of a workplace:

  • Factories Act, 1948
  • Shops and Establishments Act
  • Industrial employment (standing orders) 1946 Central Rules

However, there is some tax on additional income or tax on second income. Therefore, employees should have complete knowledge about tax on moonlighting income to avoid any complex situation related to dual employment. Avail of our CA-assisted ITR filing, and make it simple.

Frequently Asked Questions

Q- What is Moonlighting of employees in the IT industry?

Post-COVID-19 pandemic, work from home has become the new normal. IT employees took this advantage and started making additional income from secondary sources without taking concern of this full-time employer. It is known as Moonlighting of employees. Many IT giants caught their full-time employees doing Moonlighting.

Q- Can my employer fire me for doing Moonlighting?

Legal experts and HR individuals can terminate employees who are Moonlighting without letting their primary company know about it. The IT companies are strictly against it.

Q- How do companies catch Moonlighting?

Companies can catch Moonlighting by keeping their eyes on employees with two EPF accounts (Employees' Provident Fund). In addition, there are some software using which employers can track and monitor the activities of their employees.

Q- Which companies allow Moonlighting?

Many leading start-ups like Swiggy, Zomato, Flipkart, Ola, and Delhivery brought unofficial moonlighting policies for their employees.

Q- Is Moonlighting cheating?


Q- What is unethical in earning Moonlighting income?

If you have signed an agreement or contract that has bound you in single employment, then you are not allowed to earn additional income from your second job.

Q- What are taxes on second income?

The taxes on second income may raise some complicated tax situations. See how you are earning additional income:

  1. As a salary
  2. As a professional fee
  3. As a part-time

According to that, the tax implications apply.

Q- Is Moonlighting and freelancing the same?

It's your moral obligation to inform your full-time employer about the second job. You may continue if they don't have any issues with it.

Q- Can I get fired for doing two jobs?

Your employer can take legal action against you for doing two jobs simultaneously.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.