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Is income from moonlighting for a foreign firm taxable?

The Rediff Money Channel presents everything you wanted to know about tax issues, but didn't know whom to ask. Chartered Accountants from Ganesh Jagadeesh & Co are here to remove all your doubts.

These days it is quite common for software engineers to do moonlighting. If you are working for a firm and in your leisure take up projects outside of daily work, how will you account this in income tax. Further, if the work during leisure time is done for an agency outside India, is the amount so earned taxable? If so, how should one declare it? What are the measures one can take to minimize the tax obligations?

-- Sankar Subramanian

If you are a resident Indian as per the Income Tax Act, 1961, the income earned by you in your leisure time is also taxable. However, if you are on an assignment for an agency outside India, you are eligible for certain deductions from the income so earned by virtue of which you will not be required to pay any tax or be required to pay tax on a lower amount.

Assuming that the income earned by you is only the professional income received for services rendered, you can claim a relief under section 80RRA provided you fulfil the conditions mentioned in the said section.

You have to declare this income by accounting for it in your tax return.

I would like more information about the Jeevan Suraksha scheme of LIC where one can claim rebate of Rs. 10,000 from the taxable income. What are the advantages of this scheme and what are its benefits in terms of value for money invested? What are the other schemes for tax saving for those in the highest tax bracket and availing benefit of accrued interest and savings of maximum of Rs. 60,000 under section 88? Are there any short-term savings schemes for availing tax benefit?

-- XXX

Regarding Jeevan Suraksha, you may have to get in touch with an LIC Agent to understand its full features. However, the scheme entitles you to a benefit of a deduction of up to Rs.10,000 (excluding interest or bonus accrued or credited to the assessee' s account, if any) from your total income under section 80CCC of the Income Tax Act, 1961.

Investments in mutual funds/shares are eligible for rebate under section 88 of the IncomeTax Act, 1961 and can be reduced from the tax liability, provided the following are taken into consideration:

1. Contribution up to Rs10,000 are made to notified Equity Linked Saving Scheme of a Mutual Fund.
2. Contribution to any notified pension fund set up by a notified Mutual Fund
3. Amount invested in debentures of, and equity shares in, a public company (approved by the Central Board of Direct Taxes) engaged in infrastructure including power sector . (It also includes subscription to equity shares and debentures of a public company for the purpose of providing telecommunication services-whether basic or cellular- and further eligible issue of capital by a public financial institution.

All the above investments, in order to qualify for the rebate, cannot be sold/pledged/transferred for a period of three years. Further, all investments in/payments made towards the items mentioned in section 88 of the Act also qualify for the rebate.

The above entitles you to an additional investment of Rs.10, 000 being available in case of investment in infrastructure undertakings/projects etc as above.

Further Section 80D of the Act provides for a deduction of upto Rs.10,000 incurred by you on account of premium paid to keep in force policy of medical insurance on self and family.

Further, a salaried person may be able to save taxes only through an optimal structuring of the salary.

In February 1999, I received Rs.30,000 as encashment for Leave Travel Assistance and Rs.9000 was deducted as Income-tax @ 30 per cent. Thereafter the DDA added 10% of the LTA i.e.Rs.3,000 as perks to my income and another 30 per cent of it, i.e., Rs.900 was further deducted as Income-Tax. Can LTA encashment be thus taxed twice, once as salary and then as perk?

-- Sunil Krishna

From October 1, 1997, exemption u/s 10(5) of the Income tax Act, 1961 read with Rule 2B of the Income Tax Rules, 1962 is subject to the following conditions:

This question relates to Leave Travel Concession provision which employees are entitled to once in two/four years. I understand till recently an employee was required by the I.T. Act to pay tax if he travelled by air during his LTC travel on that part of the expenditure in excess of the II A.C. fare by railways. Some friends tell me that this law is no longer applicable etc. Please clarify.

-- Suryanarayana

From October 1, 1997, exemption u/s 10(5) of the Income tax Act, 1961 read with Rule 2B of the Income Tax Rules, 1962 is subject to the following conditions: TABLE

The above concession is available for 2 journeys performed in a block of 4 calendar years.

I was working abroad for a period of 5 months on a work permit. I paid tax as per the tax structure of that country. I came back to India and was here for a month. I again went back to the same country on a Business Trip for another 5 months. But, this time, I was there on a Business Visa. I was being paid an allowance on the trip. Therefore I did not pay any tax over there in this trip. My question is

1. Is the allowance I earned on my second trip TAXABLE.
2. Is the money I earned on the first trip taxable in India also.
3. Do I get a NRI status based on the above two trips.

Currently I am back here to the same country and am here for the last one month

-- Peter DSouza

The taxability of income of an individual is based among other things on the residential status, which determines the tax incidence. You have not provided us with the full details of the period (Dates) during which you were out of the country without which it is very difficult for us to determine your residential status. Without knowing your Residential status it is not possible for us to determine your tax incidence.

The rule that governs the determination of residential status of an individual is already given by us in some earlier answers. You may refer to them.

Can you please tell me if dividend from units is tax exempt for assessment year 1999-00 or only from assessment year 2000-01 onwards? What is the exemption limit under 80L for both these assessment years?

-- David Rasquinha

Dividends received from units in the Unit Trust Of India & units of mutual funds specified under section 10(23D) is not exempt from tax up to assessement year 1999-2000. However, a deduction can be claimed to a maximum of Rs 15,000 under section 80L.

The amount of deduction is as follows for assessement year 1999-2000.For general deduction Rs 12000. And for special deduction Interest on units of UTI/ mutual fund & interest on any security of the Central Government or a State Government Rs 3000

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