Stipend received by PG Doctors Taxable or Exempt?

A stipend is a form of compensation that is paid to certain individuals for services rendered, other work, or while they receive training. Stipends are often provided in lieu of or (in some cases) in addition to a regular salary. The tax treatment of the stipend depends upon the terms and purpose related to such payment. When a person receives a stipend for educational purposes, it can be referred to as a scholarship; hence, no tax shall be levied. 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.

MBA or Engineering Graduates receive  Internships Stipend

The selection of a suitable ITR form depends upon the nature of income earned by a taxpayer. If the taxpayer is not having a business income, he shall use ITR-1 or ITR-2 for filing his income tax return in respect of stipend income. The Stipend letter may or may not include a breakup as a salary letter does. It may or may not be similar to the employment letter offered to a full-time employee. However, if this payment is made for you to gather experience and perform services similar to an employee, such Stipend income shall be taxable. When a stipend is paid as remuneration for services provided while gaining experience, it is considered as salary.

On the other hand, employees should ensure they aren’t considered trainees. One of the main advantages of this type of compensation is that you may get to keep what you earn depending on your employment status. Depending on your status, you may not have taxes withdrawn to pay for Medicare and Social Security. The stipend amount an individual receives often depends on the task they are assigned or the expense that is being offset. For instance, a company may pay a trainee $450 for a week’s worth of training or a church may pay a clergy member $1,000 for living expenses. When gross total income is below the exemption limit, it is not mandatory to file an Income Tax Return, but if filed voluntarily, stipend income can be shown under the schedule for exempt income.

Is ITR required to be filed for stipend income?

It is evident when a salary is paid that an employer-employee relationship exists. However, certain stipends may be tax-free up to IRS-designated annual contribution limits. To qualify for tax-free treatment, the stipend must be used for specific purposes, such as education or commuting expenses. And in this case, you’re entitled to receive the minimum wage and any overtime pay, if it applies.

Here, the objective of a stipend is not to meet education expenses but to compensate for the duties performed similarly to a full-time employee although it is generally lower pay than salary. 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. Their hours are more or less same when compared with a permanent employee at the hospital. This makes their stipend liable to taxation, especially when their agreement doesn’t mention anything that points otherwise.

Although it may not be in the nature of formal salary, it is paid for the services rendered while gaining experience. So this remuneration received during an internship will also qualify as salary and thus taxable. Salary received from the employer is taxable under the head income from salary as per the Income Tax Act.

Health and wellness are now an important part of the work-life balance that many employers promote. Rules outlined by the Department of Labor (DOL) exist surrounding how stipends can be used by companies and organizations. Stipends cannot be used to hire students to replace existing staff, and the students must be the primary beneficiaries 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.

Contact Forma today for more advice on offering stipends

A stipend received for meeting the cost of education is also treated as a scholarship within the meaning of Section 10(16) of the Income Tax Act. The Universities, Colleges, Schools offer scholarship to meritorious students on the basis of their last performance. 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.

Individuals can claim deductions for expenses related to earning stipends. When doctors pursue PG courses, they are required to work in a hospital as interns. During their internship, they perform work similar to a full-time doctor and earn stipends. The stipend payment is made to doctors to gain experience and perform services similar to a full-time doctor employed in the hospital. Therefore, stipend to doctors pursuing PG courses cannot be considered as ‘scholarship’ within the ambit of section 10(16) of the Income Tax Act. Hence, the stipend received by the doctors is taxable under Income Tax.

Deduction u/s. 80P inadmissible as return filed after due date prescribed u/s. 139( : ITAT Ahmedabad

1. You should also consult with a tax professional or benefits administrator to ensure that your stipend program is compliant and effective.
2. Individuals can then use this extra cash to put toward paying for their insurance premiums for coverage that can be purchased either through the healthcare exchange or directly from private insurers.
3. When a Stipend is paid to further a person’s education, we need to test whether it qualifies as a Scholarship.
4. Stipends are also offered to employees as additional benefits to cover certain expenses, which are offered by companies to make the job more attractive to potential candidates.

While stipends and salaries may seem similar, they have distinct differences in terms of how they’re paid and taxed. Many corporations and organizations offer stipends to workers and other individuals. The following are just a few examples that are found in the real world.

Are stipends taxable? Everything you need to know in 2024

Thus, if any student gets a monthly scholarship or a lump sum scholarship or a stipend and the same is utilised to meet the cost of education then the same is not taxable under the Income Tax Act. The stipend is also treated as salary when the deductor deducts TDS under section 192 or issues form no.16. If the deductor does not deduct TDS on the amount of the stipend or does not issue Form no.16, then the stipend is taxable under the head income from other sources based on the nature of training, etc. Research fellowships or grants received from universities are exempt from taxes as they are considered as an aid for further education.

Let’s dive into the details to help you understand the tax implications of stipends. In this guide, you’ll find out everything you need to know about stipends and what is and isn’t taxable. Stipend-based roles are mainly training and learning, with the primary beneficiary being the recipient rather than the employer. Thus, the purpose for which a stipend is given is important to decide the taxability of the stipend. If stipend is taxable or not the purpose of granting a stipend is to help the trainee to meet his living cost, it will not fall within the ambit of section 10(16) and will therefore be taxable under Income Tax Act. Usually, Articles pursuing CA may earn a Stipend, or a professor may receive a stipend for carrying on research work.

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