Income Tax Act has specified different nature of incomes and their taxability. But there is no specific mention of Stipend Income. This makes it difficult to determine whether it is taxable or not. The stipend can be classified based on the Objective of a stipend. It can be classified in the following two categories:
- As a Salary Income or
- As a Scholarship.
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-1: 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.
Example-2: Stipend paid to MBA Interns
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.
Stipend as a Scholarship
The scholarship is granted to meet the cost of education. The stipend will be considered a scholarship if the objective is to give the means of supporting education. Some of the examples of scholarship are research fellowships, an 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.
Where to show stipend Income in return?
If your stipend is treated as Salary Income:
- And your employer has already deducted TDS and issued Form 16 then the stipend will be taxed under the head ‘Income from Salary’.
- Even when TDS is not deducted by the employer, it will be taxable under the head ‘Income from Salary’.
- If your stipend is taxable, you can save tax with Chapter VI-A deduction.
- You can not claim any other expenses as a deduction from your stipend income.
If your stipend is treated as Scholarship:
- It is exempt from Income Tax.
- You don’t need to file ITR. However, you can still file the ITR and show it under the head ‘Exempt Income’.
ITR filing is mandatory if the following conditions are fulfilled:
1. Stipend Income is treated as Salary Income,
2. Total stipend earned during the year is more than INR. 2,50,000.
It depends on the category of stipend. If a stipend is treated as Salary Income then TDS will be applicable. But if a stipend is treated as a Scholarship then TDS will not be applicable. Since scholarship is exempt from taxes.
‘Salary’ received by an ’employee’ is taxable in the hands of the employee, thus stipend which is in form of salary is shown under the head ‘Income from Salary’. However, the Income Tax Act has further laid down that ‘scholarship granted to meet the cost of education’ is exempt from Income Tax under the section 10(16).