Hope all of you enjoying our updates. Today, I would like to share income tax provisions on stipend. Taxation of Stipend has been a matter of much debate. In the Income Tax Act from a purely factual standpoint there is no mention of ‘stipend’.
Income Tax Provisions
Under Section 17(1) of the Income Tax Act — wages, pension, gratuity, fees or commission or profits in lieu of salary, advance salary, payment for leaves standing to the credit of the employee — have all been included under the definition of salary. This is taxable in the hands of the employee.
The Income Tax Act has laid down that “scholarship” granted to meet the cost of education’ is exempt from income tax under Section 10(16).
- Sudhir Kumar Sharma vs ITO (1983 15 Taxman 100 Jaipur Mag) – where it has held that the stipend received by an articled clerk from a chartered accountant is exempt under Section 10(16). The reason given by the Bench was that the stipend was paid to meet the cost of books, coaching fees, examination fees, and so on.
- ITO vs Dr. G. N. Ramachandran (1 ITD 902 Bangalore) – where it held that stipend received to meet the cost of education would be exempt under Section 10(16).
So, in case of Company Secretary’s, Chartered Accountants, Cost Accountants and Advocates, Stipend is exempted because it is paid to meet the cost of books, coaching fees, examination fees, and so on.
When Doctors receive Stipend at hospitals – Usually doctors earn stipend as they pursue a higher degree at a hospital. Such work by the doctor is similar in nature to that of a full time employee. The doctor is gaining experience from such work and performing duties like regular doctors – in such cases your Stipend may be taxed.
MBA graduates or engineering graduates receive stipend by pursuing internship at a company – Some companies may even offer accommodation. The Stipend letter may or may not include a break up like a salary letter does. This may or may not be similar to the employment letter offered to a full time employee. However, if this payment is made for you to gather an experience and perform services similar to an employee, such Stipend income shall be taxable.
Filing of Income Tax Return – If total stipend is not more then exemption limit specified under income tax slab rates (vary every year) then no need to file income tax return otherwise you must go for filing income tax return.