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What Is A Stipend: Are Stipend Taxable?

Updated on: 15 Apr, 2022 05:38 PM

A stipend is an amount that is paid to trainees, interns, and students. It is generally a lower pay than a salary. This amount allows an individual to pursue work that is normally unpaid by helping defray the living expenses.
When an employee receives a salary from an employer he has to pay tax on the same as per the provisions of the Income Tax Law. However, there is not much clarity in the law with respect to the taxation of stipend.

How taxability of the stipend income is determined under the Income Tax Act?

The stipend is usually earned by interns or article associates pursuing accountancy, medicine, law etc. Elsewhere the professors could earn the stipend to conduct research work in the fellowship program. In deciding whether such a stipend is taxable or not, the purpose of such payment is an important factor.

There is no specific mention of stipend whether it's taxable or not under the Income Tax Act. The inference can be taken from section 10(16) which states the non-taxability of “scholarship granted to meet the cost of education”. Now, the question is whether a stipend should be considered as a “salary” or “scholarship”.

The tax treatment of stipend depends upon the terms and purpose related to such payment. When a person receives a stipend for educational purposes then it can be referred to as a scholarship and hence, no tax shall be levied.

Research fellowships or grants received from universities are exempt from taxes as they are considered as an aid for further education.

What is the taxability of stipends earned by Doctors?

When doctors pursue their higher education at hospitals they perform the work that is similar to the kind of work performed by full-time Doctors. They earn the stipend as well as gain experience through this work. In this case, they perform the work similar to a regular doctor, so the stipend they earn can be subject to tax depending upon the terms/nature of the internship and purpose of stipend.

What is the taxability of stipends earned by an article associates pursuing chartered accountancy(C.A.) courses?

An article associates a chartered accountant firm with a view to learn the work and undergo training. A newly recruited article is not supposed to have any knowledge of the work and therefore no contribution can be made by him in the work. Therefore it could be said that the stipend was not paid for the service rendered by the article but to meet the incidental expenses. Hence, the stipends received by the article is generally not treated as his income and hence not taxable.

What is the taxability of stipend received by MBA graduates or engineering graduates?

The MBA or engineering interns are paid the stipend for performing work similar to work performed by regular employees in this field. Hence, the stipend income earned by these individuals will normally be subject to tax as it is provided for the experience as full-time employees.

Is stipend taxable in the hands of a receiver?

Companies may or may not deduct TDS on stipend paid by them but it may still be taxable in the hands of the person receiving the same when it is not covered in the exempt category.

Under which head of income stipend income is taxed?

If your employer already deducts TDS on stipend income and that deduction is under section 192 and issues you Form No.16 then this income shall be reported under the head “Income from salaries” otherwise it is to be offered for taxation under the head “Income from other sources”.

Is it mandatory to file the ITR by a person earning stipend income?

For an individual, if income exceeds the basic exemption limit and is not chargeable to tax in a financial year then filing of return is mandatory even if it is the income received in front of the stipend. The basic exemption limit for F.Y. 2020-21 is Rs. 2,50,000/- for persons below the age of 60.

Frequently Asked Questions (FAQs)

Q - Is the stipend treated as a salary?

Salary is the amount paid to employees for services given by them to the employer. There exists an employer-employee relationship. A stipend is an amount that is paid to trainees or interns.

Q - What is the tax treatment of salary and stipend?

Salary received from the employer is taxable under the head income from salary as per the Income Tax Act. The employer deducts TDS on the amount of such salary paid if the total income of the person receiving a salary is more then the basic exemption limit.
The stipend is also treated as salary when an employer deducts TDS under section 192 or issued form no.16. If the employer does not deduct TDS on the amount of stipend or do not issue Form no.16 then stipend is taxable under the head income from other sources based on the nature of training etc.

Q - Is any expense allowed against the income from the stipend?

No, expenses are not permitted to be deducted from Stipend. Even if the stipend amount is taxable it is charged either as salary income or income from other sources from which no deduction is allowed for any expenses under the income tax act.

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.