Whether “Stipend” received by students/trainees is taxable as such under the Income Tax Act, 1961?

Stipend

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Whether ” Stipend ” received by students/trainees while pursuing higher education/internship/articleship etc. is taxable as such under the Income Tax Act, 1961?

Scholarships granted to meet the cost of education is exempt under s. 10(16) of the Income Tax Act.

The meaning of word ‘scholarship’ as per vrious disctionaries is as follows:

  • “Scholarship—a sum of money or its equivalent offered (as by an educational institution, a public agency or a private organization or foundation) to enable a student to pursue his studies at a school, college or university.”
  • “Scholarship—Maintenance or a stipend for a student awarded by an educational institution.”
  • “Scholarship—Financial help for a student on the basis of academic merit to help with living expenses, study or travel etc.”

The proper view to take on section 10(16) of the Act would be that scholarship, even though income in the hands of the scholar-recipient, would not be included in the taxable total income, if it was a scholarship granted to meet the cost of education – [Dr. V. Mahadev v. CIT [1990] 51 Taxman 411 (Mad.).]

Useful references:

  • Exemption under s. 10(16)—Scholarship—stipend received by assessee from foreign institute for giving lectures was exempt under s. 10(16) on the basis of the certificates issued by that institution. [ITO vs. DR. G. N. Ramachandran (1982) 1 ITD (BANG) 902]


–    Exemption under s. 10(16)—Scholarship—Scholarship/Stipend for pursuing higher studies—Assessee selected  for a Government scholarship for pursuing post-graduation course in a Government medical college— Conditions and terminology used in the bond executed between the assessee and the college clearly suggest  that the impugned amount is a scholarship/stipend for further studies and not a salary- Therefore, it cannot be termed as a ‘salary’ or a ‘perquisite’ as provided under s. 15 r/w s. 17—Sec. 10(16) clearly speaks about scholarship granted to meet the cost of education—Therefore, even if it is an income in the hands of scholar recipient, it is not to be included in the taxable income as it is a scholarship to meet the cost of education u/s. 10(16) [Dr. Rahul Tugnait vs. ITO (2010) 124 ITD 480]

 

  • Exemption under s. 10(16)—Scholarship—Assessee, an articled clerk, receiving stipend from a firm of Chartered Accountants—Assessee joining the firm only with a view to learn and receive training—Assessee not in a position to assist the Chartered Accountant in his work—Stipend received only to meet the cost of education is in the nature of scholarship and is exempt from tax under s. 10(16) [Sudhir Kumar Sharma vs. ITO (1983) 17 TTJ (JP) 226] etc.

 

NOTE: Please note that terms of agreement between the recipient and the principal and rules governing payment of stipend shall be the decisive factors as to taxability.


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