Student Gets Rs 18.34 Lakh Stipend From University, Receives Income Tax Notice; ITAT Delhi Rules in Her Favour

Student Receives Rs 18.34 Lakh Stipend

A postgraduate medical student from Rewari, Haryana, received a stipend of Rs 18,34,578 from Aligarh Muslim University (AMU) while pursuing her MS in General Surgery. The payment was connected with her full-time postgraduate medical education and compulsory residency training. 

The student treated the amount as an educational stipend and claimed that it was exempt from income tax under Section 10(16) of the Income Tax Act, which covers scholarships granted to meet the cost of education.

Why the Income Tax Department Issued a Notice

The tax department did not accept the student's treatment of the stipend as an exempt educational scholarship. The amount was treated as taxable salary during the assessment proceedings.

The dispute eventually reached the Income Tax Appellate Tribunal in Delhi after the student's exemption claim was not accepted by the lower tax authorities. 

The key question before the tribunal was whether the Rs 18.34 lakh payment should be regarded as taxable salary or as a scholarship/stipend connected with education.

ITAT Delhi Rules in Student's Favour

The ITAT Delhi bench ruled in favour of the student on July 30, 2026. The tribunal held that the stipend received during her postgraduate medical studies could not simply be equated with salary.

The tribunal relied on an earlier coordinate-bench decision involving postgraduate medical education and held that the educational stipend qualified for exemption under Section 10(16). 

As a result, the addition made by the tax authorities in respect of the Rs 18,34,578 stipend was deleted and the student's appeal was allowed.

Section 10(16) Was the Key to the Case

Section 10(16) of the Income Tax Act provides an exemption for scholarships granted to meet the cost of education. The central issue in this case was therefore the actual nature and purpose of the payment rather than merely the fact that the student received money from a university.

The tribunal found that the stipend was received specifically while the assessee was pursuing a full-time MS (General Surgery) programme and completing compulsory residency training attached to that academic programme. 

Stipend Was Not Treated as Ordinary Salary

The ITAT's reasoning draws an important distinction between a payment made as remuneration for employment and a stipend connected with education.

In this case, the tribunal noted that the student was a qualified MBBS doctor pursuing postgraduate education and that the stipend was linked to the academic programme and mandatory residency training. It therefore accepted the educational character of the payment. 

This distinction was crucial to the outcome because treating the amount as salary would have resulted in a substantially different tax treatment.

Earlier Tribunal Decision Supported the Student

While deciding the case, the ITAT relied on an earlier decision concerning a postgraduate student who had received a similar stipend. That decision held that a stipend or scholarship received during postgraduate studies could qualify for exemption under Section 10(16) and should not automatically be treated as salary. 

The Delhi tribunal adopted the reasoning from that earlier case and applied it to the student's circumstances.

What the ITAT Order Means for Students

The ruling highlights that the tax treatment of an educational stipend can depend on its underlying purpose and the circumstances in which it is paid.

A stipend received by a student is not necessarily taxable salary merely because the payment is made regularly or comes from an educational institution. Where the payment qualifies as a scholarship intended to support education, Section 10(16) may become relevant. 

However, the ruling should not be interpreted to mean that every stipend received by every student is automatically tax-free. The specific nature, terms and purpose of the payment remain important.

ITAT Allows Student's Appeal

After examining the facts and relying on the earlier tribunal ruling, the Delhi ITAT deleted the disputed addition. The tribunal concluded that the stipend was eligible for treatment as an exempt educational scholarship under Section 10(16).

The order was pronounced in open court on July 30, 2026, bringing the tax dispute in the student's favour. 

Conclusion

The Rs 18.34 lakh stipend case provides an important tax clarification for postgraduate students, particularly those pursuing medical education. The Delhi ITAT ruled that the stipend received by the student from Aligarh Muslim University was connected with her postgraduate education and compulsory residency training and could not be treated simply as taxable salary.

The decision reinforces the importance of Section 10(16) of the Income Tax Act, under which qualifying scholarships granted to meet the cost of education can be exempt from tax. At the same time, the tax treatment of stipends depends on the facts and nature of each individual payment.