Are Stipends Taxable Income? Yes, You Still Have to Pay Taxes

You should also note that giving employees a cash payment or gift card is always considered a taxable benefit, even if the amount is small. It’s essential that you understand the difference between pre-tax, taxable, and non-taxable benefits. Benepass is a benefits administration software that eliminates confusion about managing stipends and defines eligible expense categories for your employees. Whether you offer pre-tax, non-taxed, or taxable stipends, Benepass ensures you comply with all applicable IRS regulations.

To ensure compliance with tax regulations, it’s essential to maintain proper records of your stipend income and any deductions or exemptions claimed. Keep all relevant documents, including stipend offer letters, income certificates, and receipts for deductions or exemptions. Research fellowships, grants received from universities may all be exempt when their nature is to support further education. Hopefully, this article helped you understand how to withhold taxes for fringe benefits. If you need tax advice, you should contact a tax professional to ensure your organization stays compliant.

  1. Despite this, the Tribunal held that the amount received by the assessee was in the nature of salary income and not scholarship and dismissed the appeal of the assessee.
  2. He’s worked for digital marketing agencies, in-house marketing teams, and as the editor for national award-winning high school and college newspapers.
  3. But remember, the majority of stipends are considered a form of taxable income.
  4. All Educational scholarships are exempt from tax or are tax free, whether sponsored  by the Government or not; whether received from Indian Institutions or foreign Institutions.
  5. So this remuneration received during an internship will also qualify as salary and thus taxable.

For families with childcare needs, dependent care stipends can be a game-changer for working parents, covering the costs of daycare, preschool, after-school programs, or in-home care like nannies. 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.

The issue of deduction of tax or TDS from the payment of stipend is discussed forthwith. The Tribunal found that the payment was made by the employer to the children of the assessees as scholarship and as such the said amount is liable to be exempt under Section 10(16) of the Act. Against the order of the Tribunal, the department went into an appeal before the High Court. However, as per the Assessing Officer, the amount received by the taxpayer was not is stipend taxable in india a scholarship but an award which did not fall within the ambit of section 10(16). 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. Do note that if you are earning a Stipend that is taxable, no deduction is allowed for any expenses that you have incurred to earn the stipend.

Difference between pre-tax, taxable, and non-taxable benefits

(5) Junior/Senior fellowships awarded by the Department of Atomic Energy. The ITAT rejected the contention of the AO and allowed the assessee’s claim for exemption u/s 10(16), holding that the facts and circumstances of this case are similar to the Madras High Court case of V.K. Balachandran (supra) and accordingly the ratio of the same could be applied in the instant case as well. Save taxes with Clear by investing in tax saving mutual funds (ELSS) online.

This benefit gives working parents the option to allocate a portion of their pre-tax salary toward childcare expenses. As a pre-tax benefit, they’ll also lower the income they pay taxes on. However, companies must make their employees aware of annual contribution limits.

Murugavel vs. DCIT (ITA No. 177/CHNY/2014) to hold that stipend received from a foreign university is exempt u/s 10(16). Before the High Court, the DR submitted that the amount is taxable as perquisite u/s 17(2)(iii)(c). It was submitted that by giving a scholarship to the son of the assessee the company in a way reimbursed the amount of expenses which would have been incurred by the assessee.

Scholarship received from  foreign Institution

Rebecca Noori is a freelance HR Tech and SaaS writer who is obsessed with our world of work. She writes about everything from employee benefits and performance management to upskilling and productivity tips. When she’s not writing, you’ll find her grappling with phonics homework and football kits, looking after her three kids. Relieve the burden of managing employee stipends from a single, efficient platform by booking a free Benepass demo today, or contact with any questions.

If scholarship is made free, it would not naturally come within the ambit of s. 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 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. Usually, doctors earn stipend as they pursue a higher degree at a hospital. Such work by the doctor is similar in nature to that of a full-time employee.

To understand the meaning of stipends in more detail you can keep exploring 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. If the amount of stipend is towards support and furtherance of education and not as an employee then the stipend would be exempt u/s 10(16). 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.

MBA graduates or engineering graduates receive stipend by pursuing internships at a company

They can help offset the cost of work, travel, and living expenses. They can also be used to support professional development and recognition programs. Offering a competitive employee benefits package is a great way to hire and keep your workers, and many employers looking to enhance their benefits are turning to employee stipends and fringe benefits.

Cost of education comprise within its ambit, not only tuition fee, which the student is required to pay to the Institution. It includes all other incidental expenses which are incurred for acquiring the education. Another popular way for employers to distribute childcare stipends is through a dependent care flexible spending account (DCFSA).

Stipend as a Scholarship

This knowledge ensures you stay compliant and maximize every dollar you invest in your employee benefits package. Stipends – you may have heard the term before, but what exactly are they, and how do they work? Stipends are a form of financial compensation that often plays a crucial role in various fields and industries. Whether you’re a student, an intern, a researcher, or an employee, understanding stipend meaning is essential for making informed decisions about your finances and career.

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