Is Your Internship Stipend Taxable?

Posted on July 8, 2011 in Specials

By Sudhir Kaushik:

These days a lot of us take up an internship or work as an apprentice in a company under somebody. You might wonder whether you need to pay tax on the stipend earned by you from such internship. Well, you are not liable to pay any tax if you’re earning a stipend from an internship. Being an intern/apprentice does not make you an employee in the organization. Unless and until you are an employee for a particular company, whatever you earn cannot be termed as ‘salary’. Unless it is a salary, it is not eligible to be included in computation of tax.

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.

Even the scholarship received by a student for pursuing higher studies cannot be termed as salary as it falls under incomes exempt from tax as per the law. The condition is that the scholarship must be granted to meet the cost of education. However, the cost of education comprises not only the tuition fee, but also all other incidental expenses (including travel allowance) which are incurred for acquiring that particular education.

If your parents are working in a company, whatever they spend on your education can be offered by the respective company to you in the form of a scholarship. Scholarships are always exempted from tax and this also reduces the taxable income of your parents, thus benefitting both the parties. The company can give this amount to you directly which will save your parents’ tax as well as be tax-free to you. Even if the entire sum of the scholarship is not used and some of it is put in the savings account, the savings are also exempt from tax. Tax will only be calculated on the interest earned on the savings.

Sudhir Kaushik, CFO at TaxSpanner.com, has been a practicing tax consultant for the last 17 years. He is a Fellow Chartered Accountant and conducts seminars in large companies to help salaried employees with income tax and investment queries. Sudhir brings domain knowledge of income tax laws and their compliance difficulties faced by individuals. He is the author of Income Tax Handbook For Salaried Employees for smart financial planning and investments for salaried people.

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