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What Is A Stipend: Is Stipend Taxable?

Updated on: 20 May, 2024 05:12 PM

A stipend is an amount that is paid to trainees, interns, and students. It is not a salary or wage that is provided by the employer to an employee. The stipend amount is predetermined and helps individual to offset certain expenses and acts as a monetary assistance. This amount helps compensate the trainees for their conveyance and other costs related to the internship.

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 stipends.

The Income Tax Act has further stated that ‘scholarship granted to meet the cost of education is exempt from Income Tax under section 10(16).

Are Stipends Taxable?

The stipend is usually earned by interns or article associates pursuing accountancy, medicine, law, etc. For instance, professors earn a 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 the taxability of a stipend, 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 a “salary” or “scholarship.”

The tax treatment of the stipend depends upon the terms and purpose related to such payment. When a person receives a stipend for educational purposes, it can be referred to as a scholarship; 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.

Stipend as a Salary Income

Stipend paid to doctors

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

Stipends paid to CA Students

An individual doing articleship in a CA firm also earns a fixed monthly amount to help compensate the individual for the expenses incurred on the job. In simple words, a stipend is not paid for the service rendered by the article but to meet the incidental expenses. Hence, the stipends received by the articles are generally not treated as their income and hence not taxable. Such income falls under the category of scholarship and hence is exempt from tax.

Stipend paid to MBA Interns

The MBA or engineering interns are paid a stipend for performing work similar to that of 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 the stipend taxable in the hands of a receiver?

Companies may or may not deduct TDS on stipends 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. If the company has already deducted TDS and the intern has received a Form 16 from the payer, the tax will fall under income from salary.

Under which head of income stipend income is taxed?

If your deductor already deducts TDS on stipend income and that deduction is under section 192 and he also 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”.

It is treated as salary if -

  • Your employer has already deducted TDS and issued Form 16, then the stipend will be taxed under the head income from salary.
  • If your stipend falls under the taxable bracket, then the only way to save taxes is to claim deductions under Chapter VI-A.
  • Any other expenditure that cannot be claimed as expenditure from your stipend income.

It is treated as a scholarship if -

  • It is exempt from income tax.
  • It is not necessary to file the ITR when gross total income is below the exemption limit. You can file ITR voluntarily on the e-filing portal and show it under the schedule called exempt income.

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

For an individual, if income exceeds the basic exemption limit and is chargeable to tax in a financial year, then filing a return is mandatory, even if it is the income received in the form of a stipend. The basic exemption limit under the old tax regime for F.Y. 2022-23 is Rs. 2,50,000/- for persons below the age of 60 and Rs.3,00,000 in the new regime, which has been made the default regime.

Hope this article helped you understand the taxability provisions for stipends received during internships, articleships, etc. However, managing taxes can be intimidating and time-consuming, especially for students and interns who don’t have proper knowledge of the same. If you are also among those who find taxes complicated and need advice related to tax, book a consultation with our tax experts, who understand your query and provide appropriate solutions for your tax problems. Get Tax Consultancy Now!

Frequently Asked Questions

Q- Is the stipend treated as a salary?

Salary is the amount employers pay for services they give to the employees. In contrast, a stipend is an amount that is paid to trainees or interns. Thus, if employer & employee relation exists, then it will be treated as salary else it will fall under the head Income from other sources.

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 exceeds the basic exemption limit.

The stipend is also treated as salary when the deductor deducts TDS under section 192 or issues form no.16. If the deductor does not deduct TDS on the amount of the stipend or does not issue Form no.16, then the 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.