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Is Stipend Income Taxable?

Updated on: May 24th, 2024

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3 min read

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

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

Under Section 17(1), Wages, pensions, gratuities, fees or 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.

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?

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  Internships Stipend 

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. 

Difference between Salary and Stipend

Stipend

Salary

A stipend is a fixed sum of money paid periodically for specific purposes, such as internships, fellowships, or apprenticeships.

A salary is a regular payment made to an employee, typically on a monthly or bi-weekly basis, for their work or services.

Stipends are typically associated with situations where the recipient is not a full-time employee, such as students, interns, or trainees.

It is usually associated with a formal employment relationship where the individual is considered an employee.

Stipends are common in educational or training contexts, providing financial support without the full benefits of employment.

Salaried employees often receive additional benefits such as health insurance, retirement plans, and paid time off.

The tax treatment of stipends can vary. In some cases, they may not be subject to employment taxes, but they might still be considered taxable income.

Salaries are subject to employment taxes, including income tax,

Taxed under which Income Head – 

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. 

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. Here are other compelling reasons to file an IT Return.

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Frequently Asked Questions

Is a stipend taxable in India?

Yes, stipends are generally taxable in India. According to the Income Tax Act, any income earned, including stipends, is considered taxable unless specifically exempted. Stipends received for services rendered, such as those paid to interns or trainees, are typically subject to income tax.

However, scholarship granted to meet the cost of education is exempt from Income Tax under section 10(16).

Are there any exemptions or deductions available for stipends under Indian tax law?

While stipends are generally taxable, there are certain exemptions available depending on the nature of the stipend. For instance:

Scholarships: Stipends provided as scholarships or financial aid to students for educational purposes may be exempt under Section 10(16) of the Income Tax Act.

Allowable Deductions: 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.

How should one report stipend income while filing taxes in India?

When filing taxes in India, stipend income should be reported as follows:

  • Income from Other Sources: If the stipend is taxable and does not fall under the head of salary or business income, it should be reported under the head "Income from Other Sources."
  • Income from Salary: If the organization providing the stipend deducts tax at source (TDS), they will issue a Form 16, which should be used to report the income and the TDS while filing the income tax return.

Maintain proper documentation of the stipend received and any expenses incurred, as these will be required for accurate reporting and for claiming any deductions.

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Quick Summary

The taxation of stipend income is a debated topic as it is not mentioned in the Income Tax Act. The Act considers stipend as a salary if it is paid in an employer-employee relationship and exempts it if paid solely for educational purposes. Stipends can also be taxable if they are earned as part of internships or research work. Individuals can claim deductions for expenses related to earning stipends.

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