Taxability of stipend received by Indian Resident Students out of India
Indian students are getting offer for internship from institutions abroad, foreign universities and from Indian and foreign companies having offices out of India. In addition to gaining hands-on technical experience, another perk is high stipends offered by these foreign institutions. The students will earn anywhere between $2,500 and $3,500 a month – Rs 110,000 to Rs 150,000 ($1 = Rs 44.42).
It must be remembered that since a stipend is considered as income by income tax authorities, it is taxable according to the applicable slab.
Taxation for resident Indian students: All incomes earned in a foreign country are combined and taxed in India (applicable to students too, except for minors). The Income Tax (I-T) Act says an individual deputed in a foreign country on work for less than 180 days, or six months, is considered an Indian resident.
Homi Mistry, tax partner, Deloitte Haskins & Sells, said, “These students fall in the resident and ordinarily resident category and their global income is taxable in India.”
A student earning Rs 150,000 a month abroad will pay tax on income exceeding the basic exemption limit (Male: Rs 160,000; Female: Rs 190,000). In this case, the total income will be Rs 300,000, for a two-month internship.
A male student will be taxed 10 per cent on Rs 140,000 (Rs 300,000 – Rs 160,000), which comes to Rs 14,000. For a female student, the tax amount will be Rs 11,000 (10 per cent of Rs 110,000, after the exemption).
However, the tax outgo can be reduced by showing investments in tax-saving instruments. In some cases, this income could face double taxation – both in India and in the host country (as per their tax norms).
But, respite comes in the form of foreign tax credit and tax treaty benefits. “For example, students who earn from internship in the US will be exempted from paying tax, as part of the India-US tax treaty,” said Kaushik Mukherjee, executive director, PricewaterhouseCoopers.
But, the income will be taxed in the country of residence, India.
The good part is if the tax is paid in both the countries, there is a provision whereby an individual can get foreign tax credit in the home country. Suppose an individual is taxed Rs 50,000 in the foreign country and his total tax liability in India is Rs 100,000.
He will have to pay only the remaining Rs 50,000 in India after claiming the foreign tax credit, provided he has a foreign tax certificate. But, if the tax in the home country is less than what was paid in the foreign country, the differential is not refunded.
Also, if an Indian resident student goes abroad on scholarship or under a student exchange programme, the allowance given for expenses incurred in the foreign country does not come under the tax ambit. “The I-T Act exempts such allowances because these are given to facilitate academic learning,” said Mistry.
In case a minor earns an income, his/her income is coupled with the parent’s income and taxed accordingly.
Taxation for non-resident students: A non-resident Indian, studying in India for a fixed period, will not attract tax on his/her stipend earned abroad.
Reason: An NRI’s income earned in a foreign country is considered global income and does not come under the Indian tax regime. According to the I-T Act, any individual who has stayed outside India for more than 180 days is an NRI. Such individuals will be taxed only in the host country.
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