Is Stipend Income Taxable?

The taxation of Stipend Income has been a matter of much debate. From a purely factual standpoint, ‘stipend’ has not been mentioned in the Income Tax Act exclusively. 

‘Salary’ received by an employee is taxable in the hands of the employee. 

Under Section 17(1), Wages, pensions, gratuities, fees, commission or profits in lieu of salary, advance salary, and leave salary standing to the credit of the employee have all been included under the definition of salary. It is evident when a salary is paid that an employer-employee relationship exists.

In this blog, you will find out if a stipend is taxable for you and how to determine if your income falls under the 'stipend' category.

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

What is Stipend Income?

A stipend is a form of compensation that is paid to you for providing services, employment, or during some form of training. A stipend is generally earned by students, interns, doctors, fresh graduates, or professors who conduct research.

Now the question arises should we consider Stipend as ‘Salary’ or as ‘Scholarship’?

For this, we must review the terms under which such a Stipend is paid. When a Stipend is paid to further a person’s education, we need to test whether it qualifies as a Scholarship. 

The person may exhaust this money fully or end up saving some of it – as long as this has been paid purely in pursuit of a person’s education and is in the nature of a scholarship, it shall be exempt. 

This will have no relation to the position of the person. Usually, Articles pursuing CA may earn a Stipend, or a professor may receive a stipend for carrying on research work. 

The purpose of such payment is important here, not the value or the way this has been spent. 

Research fellowships, and grants received from universities may all be exempt when their nature is to support further education. 

Doctors Receive Stipend at Hospitals 

Usually, doctors earn stipend as they pursue a higher degree at a hospital. Their work by the doctor is similar in nature to that of a full-time employee. The doctor is gaining experience from such work and performs duties like regular doctors – in such cases your Stipend may be taxed.

MBA or Engineering Graduates receive Internship Stipend 

If you are a fresh graduate and/or an intern at any company, you may be provided a stipend. Since you will perform similar duties as regular employees of the company and also gain valuable work experience, your stipend will be subject to tax.

Some companies may even offer accommodation. The Stipend letter may or may not include a breakup as a salary letter does. It may or may not be similar to the employment letter offered to a full-time employee. However, if this payment is made for you to gather experience and perform services similar to an employee, such Stipend income shall be taxable. 

TDS on Stipend 

Some companies may not deduct tax on Stipend; it may still be taxable in your hands, depending upon the nature of the terms or such payment. If the company has already withheld tax and the individual has received a Form 16 from the payer, the tax will be placed under 'Salaries'. Else, it will fall under 'Income From Other Sources 

Difference between Salary and Stipend

Taxation Of Stipend

If your payer has already deducted tax and issued you a Form 16, this shall be taxed under the head Salaries; otherwise, it is usually taxed under the head Income from Other Sources. The amount received if taxable will be taxed at applicable slab rates. 

Expenses are Allowed to be Deducted from Stipend? 

Individuals can claim deductions for expenses incurred while earning the stipend, such as travel or research-related costs if these are directly related to the stipend's purpose and are supported by valid documentation. Additionally, you can save tax in the form of Section 80 Deductions. 

Should you file an Income Tax Return

Filing an Income Tax Return (ITR) in India is a significant aspect of financial responsibility and legal compliance for individuals and businesses. You can use ClearTax for a hassel free tax filing process.