Stipend Is Taxable or Not: A Detailed Guide
- Rashmita Choudhary
- Apr 16
- 7 min read
A stipend is money given to students, interns, and trainees. It is not a compensation or salary that an employee receives from their employer. The predefined stipend amount serves as financial assistance and helps individuals defray some expenses. This sum aids in covering the trainees' transportation expenses and other internship-related charges. According to the Income Tax Law, an employee must pay taxes on his wage when he gets it from his employer. However, the legislation regarding the taxation of stipends is not very clear. Scholarships awarded to cover educational expenses are excluded from income tax under section 10(16) of the Income Tax Act, according to other provisions. In this article, we will discuss the treatment of stipends from a taxation perspective.
Table of content
What is Stipend Income?
Stipends are set monthly financial awards given to students who participate in hands-on training as a component of their coursework. People participating in internships, articleships, apprenticeships, or any other academic pursuits earn stipends. The intern or article does not have an employer-employee relationship with the principal or trainer. The question now is, should we treat stipends as "scholarships" or as "salaries"? Reviewing the conditions under which such a stipend is paid is essential for this. We assess whether a stipend to someone to continue their studies counts as a scholarship. This money is used entirely or saved in part; nonetheless, it is exempt as long as it is paid solely to pursue education and falls under the definition of a scholarship. It will not be related to the individual's employment. It is common for professors to obtain stipends for conducting research or for articles pursuing CAs to receive stipends. What matters in this case is the reason for the payment, not its worth or use. University grants and research fellowships may be exempt if they promote higher education.
Stipend as a Salary Income
Here are a few specific examples of stipends being treated as salary income:
Doctors' stipend: Physicians who complete their postgraduate studies at hospitals do tasks comparable to those of full-time physicians. Through this labour, they obtain experience and a salary. Since they carry out their duties similarly to those of a regular doctor in this instance, the stipend they receive may be subject to taxation based on the conditions of the internship and its intended use as pay income in India.
Paying CA students stipends: An individual completing an articleship in a CA firm gets a predetermined monthly salary to help cover the costs of the position. The article receives a stipend to cover incidental costs rather than compensation for the services done. As a result, stipends earned by articles are typically not considered income and are therefore not subject to taxes. Such income is exempt from taxes since it qualifies as a scholarship.
MBA internship stipends: The engineering or MBA interns receive a stipend for doing tasks comparable to those of normal workers in this industry. As a result, since these people receive stipend income in exchange for their experience working as full-time employees, it is typically taxable.
Are Stipends Taxable?
Stipends received by companies may or may not be subject to TDS deductions; nevertheless, if they fall outside the exempt category, the recipient may still be subject to taxation. The tax will be classified as income from salary if the firm has already subtracted TDS and the intern has Form 16 from the payer.
Under Which Head of Income is Stipend Income Taxed
This income should be reported under the heading "Income from salaries" if your deductor already deducts TDS on your stipend income under section 192 and sends you Form No.16; if not, it must be provided for taxes under the heading "Income from other sources." Here are the specific examples of tax treatment of stipend:
Scenario 1: It is regarded as pay if-
Your stipend will be taxed under the head income from salary after your employer has previously issued Form 16 and deducted TDS.
The only method to reduce taxes if your stipend is in the taxable bracket is to take advantage of Chapter VI-A deductions.
Any additional costs that you are unable to deduct from your stipend.
Scenario 2: We consider it a scholarship if
Income tax does not apply to it.
Filing the ITR is not required if gross total income is less than the exemption threshold. You can voluntarily file your ITR on the e-filing portal and display it under the "exempt income" schedule.
Filing an ITR as a Person Receiving a Stipend
An individual must file a return if their income, even if earned from a stipend, exceeds the basic exemption limit and is subject to taxation within a fiscal year. For FY 2022–2023, the minimal exemption ceiling under the previous tax system was Rs. 2,50,000 for individuals under 60 and Rs. 3,00,000 under the new regime, now the default regime. This article should help you understand the taxability provisions for stipends received during internships, articleships, etc. However, handling taxes can be difficult and time-consuming, especially for interns and students who lack sufficient knowledge. If you are among those who find taxes complicated and require tax advice, schedule a consultation with our tax experts. They will be able to understand your question and offer suitable solutions for your tax issues.
Exemptions Available for Stipends
Depending on the type of stipend, there may be several exclusions, even if they are taxed. For example:
Financial aid: Section 10(16) may exclude stipends given to students as financial aid or scholarships for educational purposes.
Allowable Deductions: If a person's expenses are directly relevant to the intention and confirmed by legitimate paperwork, they may be deducted for their travel or research-related costs while receiving the stipend.
Difference Between Salary and Stipend
Stipend | Salary |
A stipend is a set amount of money given on a regular basis for particular uses, including fellowships, apprenticeships, or internships. | An employee receives a salary on a regular basis, usually every month or every two weeks, in exchange for their labour or services. |
Generally speaking, stipends are given to recipients who are not full-time workers, such as trainees, interns, or students. | It is typically connected to a formal employment arrangement in which the person is regarded as an employee. |
Stipends, which offer financial assistance without the full perks of employment, are typical in educational or training settings. | Additional benefits including health insurance, retirement plans, and paid time off are frequently provided to salaried staff members. |
Stipends may be treated differently in terms of taxes. In certain situations, they might nevertheless be regarded as taxable income even though they are not subject to employment taxes. | Employment taxes, including income tax, are levied on salaries. |
Conclusion
You should understand the tax ramifications of any stipends from employment or school institutions. Additionally, you should evaluate the conditions associated with the stipend payment and ascertain whether an income qualifies as a stipend. It is crucial to remember that if you receive a stipend and your overall income for a fiscal year beyond the minimum taxable limit, you must file your income tax returns.
FAQ
Q1. Is the stipend taxable in the hands of a receiver?
Stipends received by companies may or may not be subject to TDS deductions; nevertheless, if they fall outside the exempt category, the recipient may still be subject to taxation. If the intern has a Form 16 from the payer and the firm has already deducted TDS, the tax is as income from salary.
Q2. Is the stipend treated as a salary?
A stipend is money paid to trainees or interns; a salary is the amount employers pay for the services they provide to their employees; therefore, if there is an employer-employee relationship, it will be considered a salary; if not, it will be classified as income from other sources.
Q3. What is the tax treatment of salary and stipend?
Employer-provided salary is subject to income tax under the Income Tax Act's head income from salary. If the total income of the individual receiving a salary is over the basic exemption limit, the employer deducts TDS from the amount of the salary. When the deductor provides form no. 16 or deducts TDS under Section 192, the stipend is also considered a salary. The stipend is taxable under the head income from other sources depending on the type of training, etc., if the deductor fails to issue Form No. 16 or deduct TDS from the stipend amount.
Q4. Is any expense allowed against the income from the stipend?
The deduction of expenses from the stipend is not allowed. Despite being taxable, the stipend amount is either charged as salary income or income from other sources from which the Income Tax Act does not permit any deductions for expenses.
Q5. What is TDS on the stipend?
The revenue is not always tax-free, even though many businesses do not collect TDS (tax deducted at source) from intern stipends. Depending on the type of payment, the stipend may be taxable. Tax will be classified as "Salary" if the business has already deducted it and you obtain a Form 16 from them. If not, the 'Income from other sources' category is to tax your stipend. You can claim the deductions covered by Section 80D of the Income Tax Act about tax exemptions on stipends.
Q6. What is the tax exemption limit for stipends?
The stipend type and other sources of income determine the tax exemption limit. Up to a specific limit, stipends obtained for research or educational purposes are frequently exempt.
Q7. Is the stipend taxable if I receive it from a private company?
In general, stipends from private businesses are subject to income tax. Nevertheless, based on the stipend type, some deductions are made.
Q8. Is the stipend taxable if I receive it from a government organisation?
Stipends from government agencies are typically subject to income tax. Certain kinds of government stipends may qualify for particular exclusions or deductions.
Q9. How is tax calculated on stipend income?
Your entire income, including any stipend amount, is used to calculate the tax on stipend income, and your individual income tax slab will determine the applicable tax rate.
Q10. Can I claim deductions against my stipend income?
Indeed, you can deduct certain expenses from your stipend income, including tuition, housing costs, and other allowable charges.
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