(7) Maintenance allowance granted to foreign trainees under the scheme of the International Association for the exchange of students for Technical Experience. 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. In this case, the issue before the Madras High Court was whether the grant-in-aid given to the assessee was scholarship exempt under section 10(16) of the Act. In other words, services were of only incidental benefit to the hospital.

The Tribunal found that the payment was made by the employer to the children of the assessees as scholarship and as such the said amount is liable to be exempt under Section 10(16) of the Act. Against the order of the Tribunal, the department went into an appeal before the High Court. For obtaining the degree of Chartered Accountancy Course, one needs to go through practical training from practicing CA firms for certain duration. In lieu of such training, the Institute of Chartered Accountants of India (ICAI) prescribes payment of stipend.

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

As such, you do (legally) need to
declare it and report it on your tax return. However, in a scenario, wherein the stipend income is claimed as exempt, adequate documents would be required to be maintained to substantiate before the Tax Department that the stipend is in the nature of a scholarship provided to meet cost of education. The tax exemption on scholarship is internship stipend taxable in india would continue even if the scholarship is received for pursuing an educational course not leading to a degree. In certain cases, an employer may reimburse expenses incurred by his employee for undertaking an educational course in his own field of expertise. A question may arise on the taxability of reimbursement of such expenses in the hands of the employee.

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. Hence, on reading the above provisions, it appears that meeting the cost of education of the employee is a free benefit or an obligation of the employee which the employer has undertaken. 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. A similar decision is given by the ITAT Chennai in the case of Dr.K.G.

COLLEGE

Funk & Wagnalls Standard Dictionary International Edition, defines ‘Scholarship’ as maintenance or a stipend for a student awarded by an educational institution. If your payer has already deducted tax and issued you a form 16 this shall be taxed under the head Salaries otherwise this is usually taxed under the head Income from Other Sources. In the judicial decisions discussed above, [see M.N.Nadkarni’s case (supra) and ICICI Ltd.’s case (supra)] it is already held that payment for cost of education does not come within the purview of perquisites either section 17(2)(iii) or section 17(2)(iv). Comprehends not merely the instruction received at school or college, but the whole course of training, moral, intellectual and physical. Education may be particularly directed to either the mental, moral or physical power and faculties, but in its broadest and best sense it relates to them all. The view of the income-tax statute of a scholarship differs from the popular, or dictionary, view of a “scholarship”.

• In appeals, it was held that the amount received by the assessee was not in the nature of salary but in the nature of scholarship.
• On appeal, the AAC held that there was no employer-employee relationship between the institute and the assessee and the grant was not a salary, but a scholarship paid to the assessee for doing research work as a student of mathematics.
• If the firm has deducted TDS from your stipend payment, then you are supposed to receive Form 16.
• 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.
• The act provides that ‘scholarship granted to meet the cost of education’ is exempt from Income Tax under Section 10(16).

Some NGOs also award scholarships to needy and poor students to pursue their studies. The Central/State Government also award different types of scholarships on the basis of past achievements, financial status with quota for reserved, backward & the disabled. For those of you looking for more guidance around paid internships, here are some things to know. When an employee receives a salary from an employer, he has to pay tax on the same as per the provisions of the Income Tax Law. However, there is not much clarity in the law with respect to the taxation of stipends.

Q- Is any expense allowed against the income from the stipend?

If the engagement of such trainees is under any educational course, then the same may be exempt u/s 10(16) and then there is no requirement of deduction of tax or TDS from such stipend payment. Otherwise, if the payment of stipend is made under the employer-employee relationship then such stipend income may be treated as Salary income and tax shall be deducted accordingly. In order to determine the taxability of the stipend, one needs to review the terms and conditions of the engagement of the interns pursuant to which stipend is paid. When such an engagement reveals an employer-employee relationship, then payment of such stipend is taxable as Salary even though the nomenclature of the payment may be a stipend. However, when the Stipend is paid to a person for the advancement of his or his children’s education and no employer-employee relationship as such persists, then payment of such stipend qualifies as “Scholarship” which will be eligible for exemption u/s 10(16).

However, the Income Tax Act has further laid down that ‘scholarship granted to meet the cost of education’ is exempt from Income Tax under section 10(16). Students pursuing CA course and PhD students may receive stipends, research fellowships and grants which are clearly intended for supporting the educational journey, which becomes exempt. However, MBA graduates who involve in internships at various companies to gain experience, perform all the services similar to that of an employee. The confusion arises because, in the Income Tax Act, there is no mention of the word ‘Stipend’. The act provides that ‘scholarship granted to meet the cost of education’ is exempt from Income Tax under Section 10(16). Further, the Act defines the term ‘Salary’, which covers Wages, Pension, Gratuity, Fees or Commission or Profits in lieu of salary, Advance salary & Payment of leaves standing to the credit of the employee.