There is now no Income Tax on Stipend Earned !!!

Yesterday while flipping through a tax journal i came across a case study. The case study described that stipend earned during internship is an exempt income. No tax is required to be paid on such stipend.

#The Provision of Law on the basis of which, it was held that stipend is an exempt income

It is Section 10(16) of the Income Tax Act. The said provision describes that “Scholarship” granted to meet the cost of education is exempt from tax.

Now an important question of law is what amounts to “scholarship”???

Scholarship generally means providing education free of cost to a scholar or at concessional fees. However in Sec 10(16) it is used more liberally. It has been interpreted more generously by courts to include within its ambit, stipends, grants for travel, incidental expenses, etc. Thus all such earned while pursuing higher education will be an exempt income.

#When amount received will be treated as ‘Salary” & when as “Stipend”???

It depends on just one thing: The PURPOSE for which payment is received. If purpose is pursuit of higher education, then it will be exempt irrespective of value of stipend.

#Different Scenarios

1. Engineers receiving stipend during Mandatory Internship(if course prescribes) at a company: It shall be exempt from tax as it’s a mandatory internship that they are pursuing.

2. Engineers receiving stipend during Internship(Internship not prescribed by course): Now it depends upon the agreement between the company and the intern. If the intern does full fledged job and agreement uses the word Salary, then it won’t be treated as Stipend for sure. It will  be treated as salary.

3. Trainee Doctors receiving Stipend: In case of A.Ratnakar Rao, Karnataka HC held that stipend received by trainee physician for research in medicine will be exempt from tax. On the contrary if a student after completing MBBS joins some hospital as a trainee doctor, and receives some stipend, then such stipend might get treated as Salary income. The rationale behind this is that now trainee doctor is performing services like a full fledged doctor and is not pursuing any higher education simultaneously.

4. Stipend received by CA students: There is a case of Sudhir Kumar Sharma vs ITO wherein it is held that the stipend received by an articled clerk from a chartered accountant is exempt under Section 10(16). So, Articles Enjoy!!! You are squarely covered under this case law.

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