Is Stipend income taxable?
You just landed your first internship and received your first stipend , but now you’re worrying if stipends are taxable. This is a topic of frequent debate in the income tax world, as there is no mention of “stipend” in the Income Tax Act. To answer this, you need to understand what a stipend is and on what grounds it is taxable.
So in this blog, let’s dive deep and actually find out whether stipend income is taxable.
What is a stipend?
A stipend is an amount paid to interns, trainees, and students who act as full-time employees to gain real-world experience. The stipend is a predetermined amount and is usually paid on a monthly basis. Stipends are paid to compensate the interns or trainees for their convenience and other costs incurred.
Are stipends taxable?
This depends on how the stipend is treated, whether it is considered a salary or a scholarship. The terms and purposes related to the payments of stipends are vital in deciding their treatment.
If any payments are made toward an educational purpose, it is considered a scholarship, and there is no need to pay tax.
Stipends as Salary
Stipends earned by doctors.
When pursuing their higher education, doctors are required to intern at hospitals, where they perform work similar to that of full-time doctors. Through this internship, they gain real-world experience and earn a stipend as well. Since they perform work similar to that of a full-time doctor, the stipend they earn is subject to tax.
Stipends earned by MBA and Engineering students
MBA and engineering students are required to complete internships for their courses, and at these internships, they are paid a stipend for working similar to a full-time employee. The stipend earned is taxable since it is provided for experience as a regular employee.
Stipends earned by CA Students
Students pursuing CA articleships also earn a stipend to help compensate for the expenses incurred on the job. Here, the stipend is paid to meet the incurred expenses, not for their service or work. Therefore, the stipend is not treated as income and is not taxable as it is considered a scholarship.
TDS on Stipend.
It is not common for companies to deduct tax on stipends; this doesn’t make it tax-free. This income can still be taxed in the individual’s hands as income from other sources. If tax has been deducted by the company, you can receive a Form 16, and your income will be taxed as a salary under Section 192.
The only deductions available on stipends are under Section 80D of the Income Tax Act.
Is it mandatory to file an ITR?
It is mandatory to file an ITR only if the income exceeds the basic exemption limit and is taxable in a financial year. The exemption limit under the old tax regime is Rs. 2,50,000 for persons below the age of 60 and Rs. 3,00,000 in the new regime.