Is Stipend Taxable?

Important Keyword: Form 16, Salary Income, TDS.

Is Stipend Taxable?

Correct, the taxability of Stipend Taxable income under the Income Tax Act can vary based on its classification. Let’s break down these classifications:

1. Stipend as Salary Income: If the Stipend Taxable is received in exchange for services rendered, such as during internships, apprenticeships, or training programs, it is treated as salary income. In such cases, the stipend is subject to income tax as per the individual’s applicable tax slab.
2. Stipend as Scholarship: Conversely, if the stipend is provided for educational purposes and is not linked to any services rendered, it may be considered as a scholarship. In this scenario, the stipend may be exempt from tax under certain conditions specified by the Income Tax Act. Generally, scholarships granted to meet the cost of education are exempt from tax up to a certain limit.

The classification of stipend income depends on the nature of the arrangement between the payer and the recipient, as well as the purpose for which the stipend is provided. It’s crucial for individuals receiving stipends to understand the nature of their stipend and its tax implications to ensure compliance with income tax laws.

You’ve provided a clear distinction between stipend as a scholarship and stipend as salary income. Let’s summarize:

Stipend as a Scholarship:

• When a Stipend Taxable is granted to support education expenses, such as research fellowships or academic awards, it is considered a scholarship.
• Under section 10(16) of the Income Tax Act, scholarships are exempt from tax, regardless of whether the full amount is utilized for educational purposes.

Stipend as Salary Income:

• If the stipend is provided in exchange for services rendered, it is treated as salary income.
• This typically applies to situations where individuals receive stipends while gaining experience or undergoing training, such as doctors receiving stipends during higher degree pursuits or MBA interns during internships.
• Stipends paid to CA students during articleship, however, are considered scholarships and are exempt from tax as they are intended to cover material and exam fees.

TDS on Stipend:

• Typically, companies do not deduct TDS on stipends paid to interns. However, this does not mean that the income is tax-free.
• The taxation of stipends depends on the nature of the payment. If TDS has been deducted and the individual receives Form 16 from the payer, the stipend will be taxed under the head “Income from Salary.”

Taxation under Different Heads of Income:

• If TDS is deducted by the employer and Form 16 is issued, the stipend will be treated as salary income, regardless of whether TDS was deducted.
• Stipends treated as salary income are taxable, and any tax-saving deductions under Chapter VI-A can be claimed to reduce the tax liability.
• However, stipends classified as scholarships are exempt from income tax.

Filing Income Tax Returns (ITR):

• If the gross taxable income, including Stipend Taxable, is below the exemption limit, it is not mandatory to file an ITR.
• However, individuals can voluntarily file ITR on the e-Filing portal and report exempt income, such as stipends treated as scholarships, under the Schedule for “Exempt Income.”

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Official Income Tax Return filing website: https://incometaxindia.gov.in/