Tax Applicability For Stipend

Dear Pon,

I would highly appreciate it if you could provide some case laws for exemptions provided for scholarships and stipends under the Income Tax Act. It may be useful for us.

Best Regards,
Divakar

As per my best knowledge, any trainee is coming for training purposes, which indirectly states that their approach is to acquire knowledge/skills for the said reason. Stipend is paid, which is a periodic payment, especially a scholarship or fellowship allowance granted to a student. Here, the employee-employer relationship does not exist, and no labor law is applicable, whether it is ESI/PF/MW/TDS, etc.

But I would like the seniors to guide further.

You can refer to the cases highlighted in the article: [The Hindu : Stipends are not taxable](http://www.hindu.com/thehindu/biz/2001/11/22/stories/2001112200310202.htm)

Stipend is only tax-free in the case where a "student" is studying any course as per the rules of the university or AICTE; then only the stipend is tax-free. It is called "Vidya Vetan".

RAMAKANT

Agree with Ramakanth.

Section 10(16) of the Income Tax Act provides for an exemption of scholarship received to meet the cost of education. This is required to be paid for the pursuit of knowledge, resulting in awarding a degree/completion of an educational course that is exempt. However, any payments received for training that do not amount to education/recognized courses by an educational institute do not qualify for exemption. The facts of the case specified in the post are clear, and any amount paid is chargeable to tax under the Income Tax Act.

Best Regards,
Divakar

Dear Mr. Divkar,

Thank you. The stipend is applicable in the case of an educational institute only. I think in this case, the payment made to the "Trainee" can be treated as a contractual employee and handled under section 92A. Otherwise, it will fall under u/s. 95j.

Ramakant