As young people, we want to do the right thing but are often confused about our legal liabilities, tax liability being one of them. Though the question of whether students are liable to pay income tax or not is a simple one, the answer is complex.
For example, Section 5 of the Income Tax Act, 1961, describes the scope of income to include any earnings – received, accrued or arisen and deemed to be received, accrued or arisen to a resident within the geographical limits of the country. This income may be derived from business, profession, occupation, from property or from the sale of capital assets (Section 9).
Are Scholarships Taxable?
Section 10 lists out the various occupations or ventures which are exempt from tax such as agriculture, partners in a firm where the entity has already been assessed for tax and so on.
Section 10 (16) finds the first mention of scholarships disbursed to meet the costs of education as being one exemption which applies to students in India. So, if you are an underprivileged or disadvantaged candidate enrolled in a school, college or university in India then allowances granted to you by the government suffer no tax at all. This is because that allowance is meant to facilitate learning even if personal expenditure is being met.
Again, the answer depends upon whether the grants have been phrased in terms of allowances and not perks such as lodging in an expensive suite and the amount of the grant itself.
What about Students of Professional Courses?
Management graduates, engineers and doctors too receive stipends when they work in firms and hospitals. Very often, the best students get large stipends and other perks as interns.
If the internship requires regular hours and job responsibilities include the same work that other full-paid employees perform in the same or similar organizations then the stipend will be treated as income. It will thus become taxable provided it is above the exemption limit of Rupees 300,000 annually in the fiscal year 2017-2018.
To see the full table of tax slabs for this assessment year click here.
Take for instance, the case of Anubhav, a final year engineering student from IIT Bombay, who was selected to intern for Yamaha Motor Corporation, India. He was supposed to work for 3 months in Pune for a stipend of Rupees 1, 20,000 a month. Because his annual income (Rupees 3, 60,000) would exceed the 300,000 exemption limit, he would be required to pay income tax at the rate of 5% of the amount he receives.
In case, your employer does not deduct TDS and hand over Form 16 as proof of your having met your income tax dues, you would need to deposit tax on your own with the help of Form 26AS as proof of your income.
Doctors tend to pursue post graduate studies while working at hospitals. In this case, if their work involves the same responsibilities as any other doctor in their profession, then their stipend too would be liable to income tax.
Wherever the purpose of the stipend is to embellish your career profile and not to enhance learning, you will be liable to income tax.
Are Taxes Applicable to Students Studying Abroad?
Students who take up an internship outside India but are normally resident within this country for 180 days in a financial year would be liable to tax in India. The tax rates will be the same as for any other job here. But the student might also have to pay taxes abroad in accordance with bilateral tax treaties. Where the tax in the foreign country is less than what it comes to in India, the intern would only have to pay the difference in amount. There is, sadly, no provision for refund should the tax overseas be higher than what it is in India.
Which Students Need to File Income Tax Returns?
Further, these graduating interns are required to file an annual income tax return statement just like any other salaried individual or professional. There is more than one tax return form referred to as ITR forms. You need to make sure that you choose ITR-1 for your purposes. You can easily file your own tax returns using an online platform and you may consider your responsibilities fulfilled.
Students can save on Tax Liabilities by reporting deductions under Section 80.
Do Minors Need to Pay Income Tax?
Section 64 of the I-T Act explains the case of a minor who earns income from such sources as rent or interest on property, savings or term deposits, dividends on bonds purchased in his/her name or other inherited earnings. The income of a minor is usually clubbed with that of a parent and tax deducted after combining the two sources of income as one single tax liability.
Tax rates may change from year to year. That is why people pay attention when the Finance Minister makes any announcements in relation to the Annual Budget in Parliament. However, tax experts are at hand at remarkably affordable rates even for the newly employed or interned because of the necessary procedure of e-filing your income tax returns in light of government directives.