Every year, lakhs of students - CA and CS articled clerks, medical residents, MBA summer interns, and management trainees - receive stipends and wonder whether they need to pay tax or file a return on it. The answer depends on how the stipend is structured and what it's meant to cover.
There's no single line in the Income Tax Act that says 'stipend is taxable' or 'stipend is exempt' - the tax treatment depends on the nature and purpose of the payment, which the courts and tax authorities have interpreted case by case over the years.
| Treatment | When it applies | Tax impact |
|---|---|---|
| Exempt as Scholarship (Section 10(16)) | Stipend is paid purely to meet the cost of education/training, with no employer-employee relationship and no service obligation | Fully exempt from tax, regardless of amount |
| Taxable as Salary or Other Income | Stipend is paid in exchange for work performed under supervision, often with a stipend agreement resembling an employment contract | Taxable - as 'Salary' if TDS deducted under Section 192, or 'Income from Other Sources' if not |
Stipends paid to CA articled assistants by their principal (the chartered accountant firm) have historically been treated as exempt under Section 10(16) by several tribunals, on the reasoning that the primary purpose is to support the student during their mandatory training period, not to compensate for services as an employee. However, this position is not universally accepted by all assessing officers, and larger stipends with a structured monthly payment resembling a salary may attract scrutiny.
Stipends paid to medical residents and postgraduate trainees by hospitals or medical colleges are generally treated as taxable salary income, because residents perform clinical duties (patient care, on-call shifts) under supervision in exchange for the stipend - this resembles an employer-employee relationship rather than pure financial assistance for study. TDS under Section 192 is often deducted by the hospital if the stipend exceeds the basic exemption limit.
Stipends paid by companies to MBA summer interns or management trainees are almost always treated as taxable income, since the intern performs defined work assignments for the company in a structured internship program - this is squarely an employer-employee (or at least a service-for-payment) relationship. If the stipend exceeds Rs 2.5 lakh (old regime) / Rs 3 lakh (new regime, post-2025) for the year, it is taxable, though many internships are short enough that the stipend stays below the threshold when combined with no other income.
If your stipend is taxable and TDS was deducted, you should file an ITR to claim a refund if your total income (after deductions) is below the taxable threshold. Even if no TDS was deducted, if your stipend plus other income (e.g., interest from a savings account) crosses the basic exemption limit, filing is mandatory. Use ITR-1 if the stipend is reported as salary, or ITR-1/ITR-2/ITR-3 depending on whether it's classified as 'Income from Other Sources'.