Is Stipend Income Taxable?

By Hiral Vakil on January 29, 2020

Although the Income Tax Act has specified different nature of incomes and their taxability, there is no specific mention about ‘Stipend’ income. This makes it difficult to determine whether it is taxable or not. The stipend can be classified in following two categories:

  • As a Salary Income or
  • As a Scholarship.

Stipend as a Scholarship

The scholarship is granted to meet the cost of education. The stipend will be considered a scholarship when the amount is given as the means of supporting education. Be it the research fellowships or award for academic achievement or grants paid by the universities to meet education expenses. All these will be exempt from tax. Even if the grant or Scholarship amount is not fully utilized or it is utilized for some other purpose, the full amount will be exempt from tax. The scholarship is exempt u/s 10(16) of the IT Act.

Example: Stipend paid to CA students

Any student who is pursuing Chartered Accountancy and doing articleship, receives a stipend from his principal. This stipend amount is governed by an act and it is provided to CA students to meet the expenses of material and exam fees. Thus it falls under the category of a scholarship and is exempt from tax.

Stipend as a Salary Income

When stipend is paid as remuneration for services provided while gaining experience, it is considered as salary. Here the objective of a stipend is not to meet education expenses but to compensate for the duties performed similarly to a full-time employee.

Example: Stipend paid to doctors

  • In the case of doctors receiving stipend at hospitals while they pursue a higher degree, the scenario is similar to a salary. Here, they are performing duties like regular full-time doctors and at the same time gaining experience in their respective fields. That’s why the stipend received by the doctors will be taxable as salary income.
  • Even MBA students who are required to go through an internship before completion of their course duration, receive remuneration for the same. Although it may not be in the nature of formal salary, it is paid for the services rendered while gaining experience. So this remuneration received during an internship will also qualify as salary and thus taxable.

Where to show stipend Income in return?

  • If your employer has already deducted TDS and issued Form 16 then the stipend will be taxed under the head ‘Income from Salary’.
  • Otherwise your stipend will be taxed under head ‘Income From Other Sources’
  • So even when the stipend is taxable and the employer has not deducted the TDS, it will be taxable under the head ‘Income from other sources’
  • If your stipend is taxable, you can save tax with section 80 deduction.
  • You can not claim any other expenses as a deduction from your stipend income.

Is it mandatory to file a return?

If your total income from all sources (including stipend) in a particular financial year exceeds Rs. 2,50,000 without allowing any deduction, you must file Income Tax Return.