You should consult with a tax professional to determine how to offer tax-free employee stipends to your employees. The best practice is to report it either monthly or quarterly depending on the amount of imputed income. For example, you may not want to wait until the end of the quarter to report it in case there are terminations that result in small paychecks which can’t cover taxes for large amounts of imputed income. To guide your reporting structure, look at your typical imputed income and compare it against the smallest average paycheck of those who are eligible for benefits.

The ITO turned down the assessee’s claim on the score that the grant-in-aid was nothing but salary paid by a foreign institute to the assessee as a professor of mathematics. A scholarship under section 10(16) cannot be equated with merit scholarship. It would only mean a payment to a party for the continuation of study or for the advancement of learning. Funk & Wagnalls Standard Dictionary International Edition, defines ‘Scholarship’ as maintenance or a stipend for a student awarded by an educational institution. Usually, Articles pursuing CA may earn Stipend, or a professor may receive a stipend for carrying on research work. ‘Salary’ received by an ‘employee is taxable in the hands of the employee.

  1. The Stipend letter may or may not include a break up as a salary letter does.
  2. Stipends are often a fixed, nominal amount of money provided to someone who isn’t eligible to receive a set salary for work performed.
  3. Taxable benefits are any benefits or perks that don’t belong in the pre-tax or non-taxable categories.
  4. The Tribunal after analysis of the terms and conditions, mutually agreed upon in the bond executed between the assessee and the college, found that the bond itself talks about scholarship holders.

The person may exhaust this money fully or may end up saving some of it – as long as this has been paid purely in pursuit of a person’s education and is in the nature of a scholarship it shall be exempt. He started with the company as a content marketing specialist in early 2022. Chase has written more than 350 blog posts for various companies and personal projects throughout his career. He’s worked for digital marketing agencies, in-house marketing teams, and as the editor for national award-winning high school and college newspapers. He’s also a YouTuber, landscape photographer, and small business owner. With a tight labor market caused by a record number of resignations and job openings over the last year, employers need to go above and beyond to attract and retain top talent.

Stipend as a Salary Income

In this article, we’ll explore stipends from the ground up to provide you with a comprehensive understanding of what they are and how they function. Since employers don’t have to offer health benefits to interns, some of them may offer their workers extra money by adding it to their paycheck to help them with health insurance costs. Individuals can then use this is stipend taxable in india extra cash to put toward paying for their insurance premiums for coverage that can be purchased either through the health care exchange or directly from private insurers. For instance, fringe benefits like parking are only taxable after a certain amount. Be sure to consult with a tax consultant if you’re unsure about the tax implications of your stipend.

Section 17(2)(iii) provides for taxation of perquisites to include the value of any benefit or amenity granted or provided free of cost or at a concessional rate by any employer to an employee. Clause (iv) of Section 17(2) provides to include any sum paid by the employer in respect of any obligation which would have been payable by the employee as a perquisite. It was further observed that every payment which is received by a person in the nomenclature of Stipend or Fellowship or even Scholarship may or may not truly be scholarship in the sense of meeting the cost of education. In Dr. G.N. Ramachandran’s case (supra) it was held that the amount received for giving lectures and royalty are not stipend and thus not exempt under section 10(16). In this case, the assessee received stipend as well as an amount for giving lectures and royalty from the National Institute of Health (NIH), Bethesda, Maryland, USA.

The stipend will be considered a scholarship if the objective is to give the means of supporting education. Some examples of scholarship are research fellowships, and awards for academic achievement. Even if the grant or Scholarship amount is not fully utilized or it is utilized for some other purpose, the full amount will be exempt from tax. Because a taxable stipend is a form of income, employers are responsible for payroll taxes, while employees could owe additional taxes on their tax returns. All fringe benefits, including stipends, are taxed at the employee’s regular income tax rate, or employers can withhold 22% of the value.

Professional development stipends invest in your employees’ growth, skills enhancement, and career advancement. Also known as educational assistance stipends, these assist employees in acquiring new knowledge, improving their expertise, and staying relevant in their respective fields. Your team members might use employee development benefits to attend conferences, workshops, and seminars or to complete courses and obtain industry certifications. Stipends have become increasingly popular as companies find creative ways to provide benefits to their employees. Let’s explore some common categories of stipends and the tax implications of each. Whether you offer your team extra cash to cover meals, cell phone usage, health and wellness, or vacation expenses, stipends can significantly impact your tax obligations.

However, it has been held in various judicial decisions that stipend, if given to meet the cost of education while pursuing an educational course, comes under the purview of section 10(16) and is exempt from tax. The term ‘scholarship’ has been interpreted liberally to also include within its scope and ambit, amounts of fellowships, stipends, grants for travel and incidental expenses, etc. awarded for acquiring education. Salary is the amount employers pay for services they give to the employees. In contrast, a stipend is an amount that is paid to trainees or interns.

Stipend Meaning: What Are Stipends?

On the other hand, employees should ensure they aren’t considered trainees. Interns, apprentices, fellows, and clergy are common recipients of stipends. Rather than being paid for their services, they’re given stipends to provide financial support while they engage in the service or task at hand.

A stipend, on the other hand, is not considered compensation for work, but rather monetary support for a variety of possible factors, such as expenses incurred during traveling or during a training period, or to cover certain living expenses. As such, they are often lower than minimum wage and are not regulated by the state but provided at the discretion of the employer. As mentioned above, stipends are not hourly-based pay and are often used by employers as a lower-cost option to pay interns or to offset the cost individuals bear while executing certain services. As such, stipends can vary depending on the company or organization that pays them.

Know the taxation rules for income F&O trading

In the terms and conditions, words used are qualifying examination and withholding the payment of the scholarship for pursuing further studies. All these conditions and terminology used therein clearly suggest, firstly, the impugned amount is a scholarship/stipend for further studies and not a salary. Even the sureties in their respective affidavits have clearly sworn that the assessee was selected for pursuing post-graduation course in surgery for the period from 2003 to 2006. In other words, services were of only incidental benefit to the hospital. The department, however, proposed to bring the income to tax on the ground that the amount received by the assessee was not in the nature of scholarship but it was salary for the services that he had rendered.

Under which head of income stipend income is taxed?

As per Rule 2BB(e), allowances for the purpose of section 10(14)(i) includes any allowance granted for encouraging the academic, research and training pursuits in educational and research institutions. However, from the reading of section 17(2)(iii) or section 17(2)(iv), it appears that payment or reimbursement of the cost of education by an employer to his employee shall be taxed as ‘perquisites’. Finally, the Tribunal held that scholarship/ stipend received by a student from College for pursuing higher studies cannot be termed as salary and therefore, same would be exempt under section 10(16). The Tribunal after analysis of the terms and conditions, mutually agreed upon in the bond executed between the assessee and the college, found that the bond itself talks about scholarship holders. The assessee was selected for a Government scholarship of Rs. 8,700 for pursuing/studying post graduation course in Government Medical College.

A question may arise on the taxability of reimbursement of such expenses in the hands of the employee. Will it be taxed as perquisite or it be exempt from tax u/s 10(16). A similar decision was rendered by the Ahmedabad Bench of ITAT in the case of  ACIT vs. Girish Saran Agarwal (ITA 293/Ahd/2003) by following the case of V.K. In this case, the assessee received amount being Humboldt Research Award from Alexander Von Humboldt Foundation, Germany. The amount received by the assessee was not fully utilized to meet the cost of education but also for his financial investment i.e. purchase of shares, RBI Relief Bond, purchase of NSC and mutual fund, etc..

Stipend is held as Salary and thus not exempt u/s 10(

Stipends cannot be used to hire students to replace existing staff, and the students must be the primary beneficiary of the employment or training—not the company. Also, a stipend may be lower than the minimum wage as long as it’s used to pay trainees. Section 10 of the Act enumerates several items of income that are outside the scope and purview of taxable total income.