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Stipend of doctor - taxable or not?

Dr. Bharath Kumar B. (Junior Resident) (24 Points)

03 January 2012

Hello..! I am a Doctor pursuing my post graduation (Junior Resident). I am being paid a stipend for as a part of my studies. Now they are planning to cut Income Tax saying the stipend is salary. Kindly throw some light as to how stipend can be salary when the Doctor is still studying? I have seen on the net that karnataka high court has ruled that stipend should be considered as scholarship and not as salary, that the services offered by the Doctor is considered a part of learning and not work as such. Please provide me with authentic literature as to whether the stipend is taxable or not?

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14 Replies

Yogesh Bhandari (CA FINAL Student) (429 Points)
Replied 04 January 2012

Stipend is taxable as it is a income from salary (similar sense) because there exists a employer- employee relationship by the terms of agreements/mutual understandings.

And it should be taxable either salary type or professional income (if there is no existence of employer-employee relationship)....

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Harsha (Financial Accountant) (60 Points)
Replied 04 January 2012

A stipend generally is not taxable if awarded to encourage or allow the recipient to further his or her development. However, it becomes taxable if given as compensation for past or present services or in expectation of future employment. For example, people studying to become CAs and doctors get a stipend when they work as apprentices; their stipend in that case is not taxable. So as long as you are working as an intern, you do not have to worry about tax.

Ankita Gala (AUDITOR & ACCOUNTANT) (35 Points)
Replied 04 January 2012

Please read this article attached here...i hope it will surely solve ur doubt...

Attached File : 322576 899257 ca 2barticleship 2bstipend 10 2816 29 2bexemption case 2blaw 2b 5b1 5d 1 .pdf downloaded: 6906 times

2 Like

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 04 January 2012

The above mentioned judgement is in favour of exemption of stipend. However, it is based on the facts that the stipend when this judgement was given was of very small amount which hardly covered cost of books and study. However nowadays scenario is little bit changed. The stipend amount is not so small. So if the stipend amount is very less you may consider above judgement and try to convince your employer..But if the stipend amount is big enough it will be taxable. The view of your employer is very much correct so far as the definition of salary under the Income Tax Act is concerned. It is better to consider it taxable in my opinion.

madhur gupta (student/article ) (1022 Points)
Replied 04 January 2012

This is not stipened.It is part of salary and hence taxable

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bhavik mehta (C.A.) (526 Points)
Replied 04 January 2012

as per my view...,

it is not salary but obivious..., so not taxable as salary....

but it is taxable under other sources..., and as per the one of the judgement nd notification.....

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 04 January 2012

Dear Bhavik,

can you kindly provide that judgement and notification for my knowledge updation coz so far as I know there is no such notification or judgement on stipend except given above and definition of salary clearly includes stipend.

Thanks in advance...

Pratul (FINANCE MANAGER) (105 Points)
Replied 04 January 2012

Stipend is not Taxable as it is granted for furthering education or gaining knowledge.. Further the Income Tax u/s 10(16) of the Income Tax Act has exempted stipend given to articles (in case of CA course) or other interns (other professional courses).

The following caselaws can be referred for that purpose :

1. A.Ratnakumar Vs ACIT (1981) 128 ITR 527 (Kar.)

2. ITO Vs Dr.G.N. Ramachandran 11 ITD 902

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 05 January 2012

Dear Pratul,

thank you for quoting the judgements.

In first case quoted by you, the institute has paid the amount as scholarship only which AO rejected due to audit query. As institue was clearly paying it as scholarship under graduation program it was held eligible for exemption u/s 10(16).

In the second case, there was no employer employee relationship as mentioned in the judgement and what was paid was grant for the research work and hence it can not be considered as salary.

Section 10(16) is regarding scholarship which nowhere includes stipend directly. wherein definition of salary clearly specifies it as taxable.

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 05 January 2012

Dear Pratul,

thank you for quoting the judgements.

In the second case, there was no employer employee relationship as mentioned in the judgement and what was paid was grant for the research work and hence it can not be considered as salary.

Section 10(16) is regarding scholarship which nowhere includes stipend directly. wherein definition of salary clearly specifies it as taxable.

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CA. Roopali Kadam (Jobs on assignment basis.) (1459 Points)
Replied 05 January 2012

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Abhishek Daga (Student) (24 Points)
Replied 19 January 2016

Under Section 17(1) of the Income Tax Act — wages, pension, gratuity, fees or commission or profits in lieu of salary, advance salary, payment for leaves standing to the credit of the employee — have all been included under the definition of salary. This is taxable in the hands of the employee.

The Income Tax Act has laid down that 'scholarship granted to meet the cost of education' is exempt from income tax under Section 10(16).

So, whether it should be taxed or not it depends on the nature of stipend.

It is a scholarship when:

The stipend is paid for someone to support their education. Research fellowships, grants received from universities are all exempt. Note that it doesn't matter if the person exhausted the money fully or saved amount of it, as long as it has been paid for someone's pursuit of education.

It is a salary when:

MBA graduates or engineering graduates receive stipend during an internship at a company

The stipend letter may or may not include a break up like a salary letter does. This 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 an experience and perform services similar to an employee, such stipend income shall be taxable.

So depending upon the nature of stipend, at the same time the amount of stipend it need to be classfied. If a same is a nominal amount which is to support the working expenses then the same is considered as exempted.