Is Stipend Income Taxable?

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By Hiral Vakil on March 7, 2019

Although 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. At the most stipend can be classified either as ‘Salary’ or as ‘Scholarship’.

Under Section 17(1) of the Income Tax Act, salary includes

  • Wages
  • Pension
  • Gratuity
  • Fees, commission, perquisites or profits in lieu of the Salary
  • Advance Salary
  • Leave encashment

And this salary is taxable in the hands of the recipient.

On the other hand, according to Section 10(16), any scholarship granted to meet the cost of education is exempt from tax.

When is stipend considered as scholarship?

The stipend will be considered a scholarship when the amount is given as the means of supporting the 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 utilised or it is utilised for some other purpose, the full amount will be exempt from tax.

Stipend paid to CA students

Any student who is pursuing Chartered Accountancy and doing articleship, receives 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.

When is stipend considered as scholarship?

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

Stipend paid to doctors

  • In 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 stipend received by the doctors will be taxable.
  • 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, but it is paid for the services rendered while gaining experience. So this remuneration received during internship will also qualify as salary and thus taxable.

Where to show stipend Income in return?

  • If your employer has already deducted tax 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 deduction from your stipend income.

Is it mandatory to file 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.