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Stipend: Income Tax Implications and Provisions Thereon
Organizations can compensate individuals for their services in addition to or instead of regular salaries. One such option is stipend, which is a compensation for work and training-related expenses. Understanding the basics about stipend will help you to know why and when businesses offer it. This article tries to answer a few questions related to stipend such as: What is stipend? What are the types of Stipend? What are the tax implications of stipend? and answers a few questions related to stipend.
What is a Stipend?
Stipends are fixed sums of money offered on a monthly basis to individuals who pursue practical training as part of their education. Stipend is received by individuals engaged in internships, articleships, apprenticeships or any academic endeavor. There is no employer-employee relationship between the article or intern and the trainer or the principal. The intent of articleship or internship is to provide the practical job experience to the prospective individuals in their concerned field. The on-the-job training of interns or articles is not equal to the regular employees engaged by the company.
How Stipend Works?
Stipends are commonly given to interns, apprentices, fellows, and clergy members. Rather than being compensated for their services, they are given stipends to cover financial expenses while performing the service or task. A stipend typically includes additional benefits such as higher education, room, and board.
Stipends cannot be used to hire students to replace current employees. Moreover, the students must be the primary recipients of the employment or training, not the company. Furthermore, a stipend may be less than the minimum wage as long as it is used to compensate trainees.
Types of Stipends
Stipends are not hourly wages and commonly offered by employers as a lower-cost alternative for paying interns or offsetting the costs that individuals incur while performing their work. As a result, stipends vary according to the company or organization that pays them. Some companies provide stipends to assist articles or interns with housing, food, or travel expenses. The following are few examples of the types that are offered:
Academic Research
Often researchers at academic institutions or organizations are provided with the stipend to help them focus on their projects. Like grants, stipends may also be provided by third parties who want to see the completion of a research project or study without causing financial distractions that would otherwise hinder the researcher. Other foundations or organizations may also offer stipends on comparable terms to support research work and projects.
Job Training and Apprenticeships
Few companies often offer stipends to their employees who wish to pursue additional training and classes that will help them with their job and career development. To provide financial assistance for additional training and courses, a stipend may be provided by the companies.
Internships
Certain internships offer stipends to help with daily expenses of the interns. Most companies set the basic amount of stipend based on the cost of living in the area in which they work. Since internships frequently result in full-time work positions, companies make sure that the interns concentrate on their work without worrying about the expenses. Examples of stipend-paying internships include: article associate pursuing Chartered Accountancy courses, law interns, medicine interns, and so on.
Fellowships
Fellowships offer financial assistance to students and may also include tuition assistance in the form of stipend. For receiving fellowship stipend, the student is not required to perform any type of services apart from continuing their education.
Clergy
Clergy members may be paid stipend based on the congregational donations received. This allows clergy to practice their ministries without seeking another job to cover their expenses for living.
Difference between Stipend and Salary
Stipend and salary have some basic differences. Let’s understand the difference between the two in detail:
Stipend | Salary |
|---|---|
Stipend is paid to trainees and articles as a part of the practical training program enrolled by them to complete their education. | Salary is paid to employees in the due course of employment. It is paid by the employer to the employee in lieu of carrying out on job duties by employees. |
The stipend recipients are generally trainees, interns, research-associates, post-graduate students, apprentices, articles, and so on. | The salary is received by the employees. |
To support the basic expenses, cost of education, research, or other projects. | To compensate for the duties performed on the job. |
Stipend is usually paid on a monthly basis. However, the trainer and the trainee may agree to a different payment frequency. | Salary is paid on a monthly basis. |
Usually, no additional benefits are provided along with stipend. | Additional benefits such as medical insurance, paid leaves, maternity benefits, retirement benefits, and so on are provided to the salaried employees. |
The duration of the articleship or internship depends on the requirement of the course being pursued by the article or the intern. | The employment duration has no fixed tenure unless it is a specific contractual employment. |
Only stipend in the form of scholarships is tax exempt. Else, the income in the nature of stipend is taxable. | Salary is liable to Income Tax. |
Difference between Stipend and Honorarium
The difference between Stipend and salary have some basic differences. Let’s understand the difference between the two in detail:
Stipend | Honorarium |
|---|---|
Stipends are paid to trainees and articles as a part of their practical training program in which they have enrolled. | Honorariums are paid as a gesture to express gratitude with no obligation to pay. |
The reason for paying the stipend is to provide financial help to the interns or trainees while they are completing their education along with the practical-training. | The primary reason for paying honorarium is to show respect to the individual who has graciously agreed to provide with a service in which he is an expert. |
An example of stipend is: A Chartered Accountancy student has to undergo a compulsory practical training of 2 years under the supervision of a qualified Chartered Accountant. The articles are paid a monthly stipend as decided by the Institute of Chartered Accountants of India. | An example of honorarium is: a world-renowned professor delivering a speech to an academic foundation. The foundation compensates the professor for their efforts by providing an honorarium. |
Is Stipend Taxable under Income Tax?
Article associates or interns studying accounting, medicine, or law typically receive a stipend for their work. Professors could also receive a stipend for conducting research as a part of their fellowship program. The purpose of stipend is an important consideration when determining whether it is taxable or not.
There is no mention in the Income Tax Act, 1961 about the taxability of stipend. A reference can be made to Section 10(16), which states that ‘scholarships granted to meet the educational expenses’ are not taxable. Now the question arises whether the salary and stipend is one and the same?
The tax treatment of stipend is dependent on the terms and the nature of payment. When an individual receives stipend for educational purposes, it can be considered as scholarship and thereby not liable to tax.
Thus, apart from the above stated nature of stipend, the remaining types of stipend becomes taxable as received by the interns or article associates while completing their on-the-job training.
ITR Filing Requirements
The Income Tax Return (ITR) filing requirement is the same as it is applicable for the other forms of sources of income. If the income from stipend exceeds the basic exemption limit of INR 3,00,000 under the New Tax Regime, the individuals will have to file the ITR and not otherwise. It is generally reflected under the head ‘Income from Other Sources’ in the ITR of the individual.
However, if the income from stipend is received in the nature of salary and TDS is deducted on the same, it will be reflected under the head ‘Income from Salary’.
Frequently Asked Questions
Q
What is the meaning of stipend?
A
Stipend is a compensation paid to articles, interns, trainees, research associates, and so on for providing financial assistance while they are on training.
Q
Who receives a stipend?
A
Stipends are offered to articles, interns, fellow associates, trainees, and research associates to help them with their financial needs while they are training on the job.
Q
Is it compulsory to pay a stipend?
A
Employers are not required to pay stipends to trainees, just as they are required to pay salaries to their employees. It is provided at their discretion, and at the most it is governed by the rules and regulations of the institution that requires such training.
Q
Are stipends and salaries the same?
A
Stipends and salaries are not the same. As such, salary is compensation to employees for working for the employers. Whereas, stipend is offered to trainees, associates, articles, and so on to facilitate the daily expenses. Salaries indicate an employer-employee relationship whereas stipends indicate a trainer-trainee relationship.
Q
What is the frequency of paying stipend?
A
Stipends are paid on a monthly basis unless any different frequency is agreed upon. The most commonly accepted frequency of paying the stipend is on a monthly basis.
Q
What are the tax implications on stipend?
A
Stipends received in the nature of scholarship are tax exempt. Whereas, stipend received by interns or other article associates as an income for the work or duties performed by them are taxable as their income subject to the basic exemption limit of the Income Tax.
Q
What are the requirements for filing ITR on receipt of stipend?
A
If the income from stipend crosses the basic exemption limit, it will be mandatory to file the Income Tax Return (ITR) and not otherwise.
Q
Are all stipends taxable?
A
Stipends received in the form of scholarship are specifically exempted from tax. Therefore, any other form of stipend is chargeable to income tax.
Q
What is the difference between honorarium and stipend?
A
Honorarium is paid as a gesture expressing gratitude to individuals who have provided expert services graciously. Stipend is a compensation offered to trainees and interns to help with their daily expenses.
Q
What is the duration of an apprenticeship or articleship program?
A
The apprenticeship or articleship program generally lasts based on the norms of the Institute which is requiring the students to undergo such a program. Some Institutes require it for one year, others for two years and so on.
Prachi Jain
Chartered Accountant
Prachi Jain is a Chartered Accountant with a passion for simplifying finance and tax-related matters through her insightful and informative blogs. With a background in finance and a deep understanding of tax regulations, Prachi has established herself as a trusted source of financial wisdom. Prachi is committed to empowering her readers with the knowledge they need to make informed financial decisions. Her expertise and dedication shine through in every blog post, helping her audience navigate the intricacies of finance and taxes with confidence. Follow Prachi Jain's blog for practical insights and guidance on managing your finances effectively.
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