Moonlighters often have a combination of ‘salary’ income and income from gigs, which is categorized as ‘income from business and profession’. The earnings from consultancy gigs are typically considered as business and professional income instead of ‘income from other sources’ so that the individual can claim various expenses like stationery, travel, and data charges. These individuals must carefully choose the correct income-tax return form and adhere to the new compliance requirements if opting for the old tax regime.
Salaried employees and taxpayers not required to undergo a tax audit must file their tax returns for fiscal 2024 by July 31. Late filing incurs a penalty of Rs 5,000 (Rs 1,000 for those with income not exceeding Rs 5 lakh). Additionally, late filing disallows the carry forward of losses to subsequent years, such as losses from the sale of securities.
Selecting the appropriate I-T return form is crucial:
Moonlighters earning ‘salary’ income from one or more employers and receiving business or professional income from gigs cannot file Form 1 (ITR-1) or even ITR-2. They need to choose between ITR-3 and ITR-4. ITR-3 is for individuals with business income, while ITR-4 is for those with a taxable income of Rs 50 lakh or less and who, for their ‘income from business or profession’, have opted for the presumptive tax regime. Moonlighters acting as consultants with gross receipts from gigs under Rs 75 lakh can opt for the presumptive scheme, provided no more than 5% of their income is in cash (non-banking channels). In this scheme, 50% of the gross receipts are treated as taxable income.
However, ITR-4 has limitations, such as it cannot be used if the taxpayer owns more than one house property.
Filing of Form 10-IEA is required if opting for the old regime:
The new tax regime, which offers lower tax rates, requires taxpayers to forgo benefits for HRA and deductions under Chapter VIA (e.g., PPF or eligible donations). Taxpayers with significant tax benefit claims might find the old regime more beneficial. The new tax regime is the default, as per Budget 2023. Taxpayers with ‘income from business or profession’ who wish to use the old regime must submit Form 10-IEA online before the I-T return deadline.
As per experts, salaried taxpayers without business or professional income do not need to file this form. Moonlighters with ‘income from business or profession’ must file Form 10-IEA to opt for the old regime, which will remain in effect in subsequent years unless they choose to revert to the new regime, an option available only once. If taxpayers with business or professional income do not file Form 10-IEA, the new regime will automatically apply, and any claimed tax benefits will be denied.