Is Stipend Income Taxable in India?

Is Stipend Income Taxable in India?

Taxation of Stipend Income/Earnings has been a matter of much discussion. From a purely factual standpoint, there is nowhere mention of a 'stipend' in the Income Tax Act.

'Salary' received by an 'employee is taxable in the hands of the employee/assessee. Under Section 17(1) of Income Tax Act– Wages, pension, gratuity, fees or commission or profits instead of salary, advance salary, payment for leaves standing to the employee's credit – have all been covered under the definition of salary. It is evident when a salary is being paid – an employer-employee relationship exists. The Income Tax Act has further explained that 'scholarship granted to meet the cost of education is exempt from the Income Tax u/s 10(16).

The question arises here: Should we consider Stipend as 'Salary' or a 'Scholarship'. For this, we must review the conditions under which such Stipend is paid– when Stipend is paid for furthering a person's education, we need to test whether it meets the requirement for a Scholarship. The person may exhaust this money completely or may end up saving some of it – as long as this has been used purely in pursuit of a person's education and is like a scholarship, it shall be exempt income under Income Tax. This will have no co-relation to the position of the person. Usually, Articles pursuing Chartered Accountancy may earn Stipend, or a professor may receive a stipend for carrying on research work. The purpose of such payment is essential here – and not the value or the way this has been spent. Research fellowships and grants received from universities may all be exempt when their nature supports further education. When Doctors receive Stipend at hospitals, doctors usually earn Stipend as they pursue a higher degree. Such work by the doctor is similar to that of a full-time employee in nature. The doctor gains experience from such work and performing specific duties like a regular doctor – in such cases, the Stipend may be taxed.

MBA or Engineering Graduates receive Stipend by pursuing an internship at a corporate/company – Some companies may even offer accommodation benefits. The Stipend letter may not include a proper break up of Stipend as a salary letter. This may not be similar to the job employment or offer letter offered to a full-time employee in usual circumstances. However, if this payment is made to gather experience and perform services identical to an employee, such Stipend income shall be taxable in the hands of the assessee.

TDS on the Stipend Income– Some companies prefer not to deduct tax on Stipend; however, it may still be taxable for the assessee, depending upon the nature of such payment terms.

Stipend to be Taxed under which head – If the payer has already deducted tax and issued a Form 16, it shall be taxed under the head Salaries Income; otherwise, it is taxed under Income from Other Sources.

No Expenses allowed to be deducted from Stipend – If you are earning a taxable Stipend, in that case, no deduction is allowed for any expenses that you may have incurred to make the Stipend; this is similar to the point of salary.

Should you file an Income Tax Return for Stipend Income – If your total income from all sources is more than the minimum taxable income, which is exempt (Rs 2,50,000 for FY 2018-19), then you should file your Income Tax Return.