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Article Dated 28th July, 2023

Taxability of Stipends


A stipend is a fixed amount of money paid to a student or trainee to help them meet their living expenses or to support their studies. It is usually paid in addition to tuition fees or other costs associated with education or training.

There are many reasons why stipends are given. In some cases, they are used to attract talented students or trainees to a particular program. In other cases, they are used to help students or trainees who are unable to afford the cost of education or training. Stipends can also be used to provide financial support to students or trainees who are working on research or other projects that require them to be away from home for extended periods of time.

Stipends are usually paid by educational institutions, government agencies, or private organizations. The amount of the stipend will vary depending on the program or project, the cost of living in the area where the stipend is being paid, and the financial resources of the organization that is providing the stipend.

Here are some of the most common types of stipends:

  • Educational stipends are paid to students to help them cover the cost of tuition, books, and other expenses.

  • Training stipends are paid to trainees to help them cover the cost of living while they are training.

  • Research stipends are paid to researchers to help them cover the cost of living while they are conducting research.

  • Fellowship stipends are paid to fellows to help them cover the cost of living while they are pursuing a fellowship.


The simple answer to the question of taxation of stipend is that it can be exempt or can be taxable. Even if we search the entire Income Tax Act we won`t find any mention of stipend, then arises a question as to how it can be said that stipends are exempt. So to answer the question let me introduce you to section 10(16) of the income tax Act which lays as under –

“(16) scholarships granted to meet the cost of education;”

Is Stipend Scholarship?-

A scholarship under section 10(16) is not necessarily a merit scholarship. It can be a payment to a student or trainee to help them continue their studies or advance their learning, regardless of their academic achievements.

The Income Tax Act does not explicitly mention stipends, but it does exempt scholarships granted to meet the cost of education from tax under section 10(16).Stipends and scholarships are not the same thing. A stipend is a payment made in exchange for services rendered, while a scholarship is a grant of money given to support a student`s education. However, the courts have ruled that stipends that are given to meet the cost of education are essentially the same as scholarships and are therefore exempt from tax.

This is because the purpose of both stipends and scholarships is to help students pay for their education. As long as the stipend is not being paid in exchange for services rendered, it is considered to be a scholarship and is therefore exempt from tax.

Meeting of Cost of Education-

Scholarships can be granted for purposes other than meeting the cost of education, but only the part of the scholarship that meets this condition is exempt from tax under Section 10(16). Other grants, even if they are called scholarships, are not exempt from tax.

It is not important whether the scholarship is more than enough to cover the cost of education. The main purpose of the scholarship must be to meet the cost of education. The courts have held that it is enough if the scholarship is intended to meet the cost of education, and no further inquiry is needed into the actual education costs incurred. The amount of the scholarship is not the determining factor for tax exemption under section 10(16). If the purpose of the scholarship is to pursue higher education, it will be exempt from tax regardless of the value of the scholarship. The recipient of the scholarship does not need to prove that the money was used for the intended purpose, and it is not necessary to spend the entire amount of the scholarship. Section 10(16) does not require the scholarship to be spent.

The term "cost of education" is broad and does not only include tuition fees. It also includes other incidental expenses, such as travel grants, hostel grants, and living expenses, that are incurred in order to obtain an education. The term "cost of education" therefore includes not only tuition fees but also all other incidental expenses incurred in order to obtain an education. The requirement of section 10(16) is that the scholarship must be granted to meet the cost of education. The cost of education includes not only the tuition fees that the student must pay to the institution, but also all other incidental expenses incurred in order to obtain the education.

In case of Dr. J. C.N Joshipura v. ACIT [1995] 67 TAXLOK.COM (IT) 114 (ITAT-BOM) HC held as under-

“There are, therefore, two considerations, which, altogether, make up the concept of a scholarship for meeting the cost of education within the meaning of section 10(16). One is that the scholarship is a payment intended to be an income receipt in the hands of the scholar. The other one is that whatever is paid is intended to make the cost of education of the recipient. Since the purpose is to meet the cost of education. The question whether the quantum of the payment is adequate or inadequate or is or is not, in excess of requirements are of beside the point. The scholarship may only meet the partial cost of education. Still it would be a scholarship within the meaning of section 10(16).”

Dealing with the basic postulates of a scholarships in Clause (16), the Hon`ble High Court in V.K. Balachandran`s [1982] 29 TAXLOK.COM (IT) 285 (MAD) case has held that it is an `income receipt`. Nevertheless, it is excluded from the total income by being brought under Section 10. The view of the income-tax statute of a scholarship, therefore, differs from the popular, or dictionary, view of a `scholarship`, whereas under the popular view, scholarship is education made available gratis, the sense in which the same expression is used in the Income-tax Act, is positive payment made to a scholar for pursuit of his education. The scholarship is made free, it would not naturally come within the ambit of section 10(16). In the sense of payment made for studies, scholarship necessarily means some payment to meet the cost of education, the payment being made to the person pursuing the education and incurring the cost thereof.

The Court further observed that the Board has proceeded on a liberal understanding of the provisions of s. 10(16) and have accordingly given instructions to the departmental officials at the assessment level to grant exemption from tax to scholarships apparently without making much fuss about the precise nature of the receipts so long as the receipts of the scholars can be broadly brought under the heading "Scholarship" and so long as the terms of the scholarship do not contain any purpose extraneous to education.

Finally, the Court has taken a view that grant-in-aid received for doing advance research work in a foreign university is exempt from tax, if the whole object is to meet the cost of education, irrespective of the appropriation of scholarship. It is further held that where the purpose of payment of scholarship is to meet the cost of education, the question whether the quantum of payment is adequate or inadequate, or, is or is not in excess of the requirement is beside the point.

Stipend: In case of CA Articleship-

To become a Chartered Accountant, you must complete a practical training program at a practicing CA firm. The Institute of Chartered Accountants of India (ICAI) requires that you complete this training, even if you pass the CA exams during the training period. This is because practical training is an essential part of the CA program.

In this context, the decision of ITAT Jaipur in the case of Sudhir Kumar Sharma vs. ITO [1983] 30 TAXLOK.COM (IT) 551 (ITAT-JAIPUR) is worthy to mention. In this case, it was held that stipend received by an articled clerk from a chartered accountant is exempt under section 10(16). The reason given by the Tribunal was that the stipend is paid to meet the cost of books, coaching fees, examination fees, and so on and hence stipend is not taxable is taken in the light of section 10(16).

Stipend: In case of Doctors-

The ITAT, Chandigarh SME Bench, in the case of Rahul Tugnait (Dr.) vs. ITO [2008] 113 TAXLOK.COM (IT) 475 (ITAT-Chd B) : ITA No. 197/CHD/2008 had occasion to consider whether stipend received by a student pursuing his post graduation at a medical college be termed as salary so as to deny exemption under section 10(16).

In this case, the assessee was a student of post-graduation in Rajindra Medical College and received stipend/scholarship which he claimed as exempt u/s 10(16). The department was, on the other hand, reluctant to consider the same as stipend but assessed the amount so received by the assessee as salary.

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. 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.

The assessee also moved application under s. 6(1) of RTI Act, on Form A [r. 3(1)], wherein, in reply, the Principal of Government Medical College, Patiala vide its letter dt. 31st Jan., 2008 has clearly termed the impugned amount as ‘stipend’ to the post-graduate student.

All the aforesaid documents clearly point that the assessee got the scholarship/ stipend as provided exempted under s. 10(16) of the Act, for pursuing higher studies, therefore, it cannot be termed as a ‘salary’ as provided under s. 15 r/w s. 17(1) of the Act.

If the wording used in s. 10(16) of the Act is analyzed, it clearly speaks about scholarship granted to meet the cost of education, therefore, it can be said that even if it is an income in the hands of scholar recipient, it would not be included in the taxable total income because it is a scholarship to meet the cost of education.

Presumably, there is a situation that the recipient does not spend the whole amount of scholarship towards education and is able to save something out of it, would not detract the same from the character of payment for scholarship.

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).

Stipend: Is it Salary-

One may refer to the ITAT decision in the case of ITO vs. Dr. G.N. Ramachandran [1982] 27 TAXLOK.COM (IT) 610 (ITAT-BANG) : ITA No. 763 & 521/Bang./1981 wherein it was held that stipend received to meet the cost of education would be exempt under section 10(16).

In this case the assessee received stipends from National Institute of Health (NIH), Bethesda, Maryland, USA. These incomes were shown as salary in the return of income. 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. The appellate authority held that such income received by the assessee from the USA is exempt under section 10(16).

On appeal before the Tribunal, the Bench held that the primary purpose of payment of stipend was to further the education and training of the fellow rather than to benefit the grantor. It was certified by NIH that stipend payments do not represent compensation for past, present or future employment services nor do they represent remuneration for services subject to the direction or supervision of the grantor. Thus, the amount received by the assessee is not in the nature of salary but in the nature of scholarship. It clearly falls under section 10(16) and is exempt.

Stipend is not held as Salary and thus exempt u/s 10(16).

TDS on Stipend-

In the case of Junior Doctors Association vs. CIT (W.P. No. 1309/2007), the Madhya Pradesh High Court observed that there is no relationship of employer and employee between the State Government and a student doing PG Course. A PG student may be required to examine or attend to a patient but that part of course and stipend is not being paid for any kind of service rendered by a PG Student. Thus, it is obvious that a stipend paid to a PG student is to meet the cost of education and thus would be in the nature of a `scholarship` and thus exclude the amount from the taxable total income under section 10(16) of the Act.

The Court while deciding the Writ petition, further ordered that no TDS would be attracted in respect of stipend/scholarship paid to PG Students. The Court further directed that if any sum is/ was deducted as TDS from the Stipend, it shall be refunded forthwith to such PG Student.

CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.

He is also socially active on LinkedIn at

CA Pranay Jain
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