Section 10(16) of the Income Tax Act provides an exemption towards the scholarship granted to meet the cost of education. The present article provides a briefing of the exemption available under section 10(16).

Understanding the provisions of section 10(16)

In simple terms, ‘scholarship’ means a grant, achieved on the basis of the academic or other achievement, made in order to support a student’s education.

Provisions of section 10(16) simply exempt any scholarship granted to meet the cost of education. In nut-shell, any scholarship received by the deserving students to meet the cost of education is exempted from income tax in terms of section 10(16) of the Income Tax Act.

Here, it is important to understand that the basis of exemption is that the scholarship income should have been used to meet the education expenses.

scholarship

Provisions of section 10(16) with simple examples-

1. Any amount received by the employee, from the employer, towards the scholarship of his child, is eligible for exemption under section 10(16).

2. Any amount received by the employee, from the employer, to aid his own studies and research is eligible for exemption under section 10(16).

Amount paid to the assessee in the for services as an intern in a medical hospital

An amount paid to the assessee in the for services as an intern in a medical hospital, where service as an intern is necessary for a person who joins a medical school, cannot be regarded as a scholarship so as to qualify for exemption under Section 10(16)

Instances of scholarships/Stipend exempt under section 10(16)

[1] Annual allowance granted to retiring research scientists by CSIR, New Delhi

[2] Stipend of research fellowships for working under the National Commission for the compilation of History of Scientists in India under the auspices of National Institute of Scientists of India

[3] Fulbright grants described as ‘maintenance allowance’ given to Fulbright students.

[4] Fulbright grant described as `maintenance allowance “given to American tutors prosecuting studies in India.

[5] Junior/Senior fellowships awarded by the Department of Atomic Energy.

[6] Financial assistance to teachers in the universities for undertaking research of learned work in science subjects and humanities.

[7] Maintenance allowance granted to foreign trainees under the scheme of the International Association for the exchange of students for Technical Experience.

[8] Research fellowship in engineering, technology, humanities and science subject

[9] Junior and Senior research fellowships awarded by CSIR.

[10] National research fellowship and fellowships to German nationals awarded by the Ministry of Education.

[11]  where a professor of mathematics is granted a grant-in-aid by a foreign university for doing advanced research in the filed of mathematics, the amount of grant-in aid would be scholarship exempt under clause 16 of Section 10.

[12] discretionary scholarship granted by the employer to the children of employees cannot be treated as a perquisile in the hands of children of employees because no right is created in their favour. Even if such scholarship is regarded as a perquisite, it would be exempt under clause (16) in the hands of the recipient.

[13] Where the assesses receives a trainee stipend from a U.S. Hospital to aim him in his pursuit of study and research and not for Hospital to aid him in his pursuit of study and research and not for services rendered and the services, if any are only incidental to the course of practical training, such a stipend would be a scholarship and would be exempt under cI.(16).

Amount of exemption available under section 10(16)

The entire amount of scholarship granted to meet the cost of education is available as an exemption. There is no upper limit prescribed under the Act.

Table – Articles on Section 10 Exemptions

Sr. No. Particulars
1 Section 10(1)– Exemption to Agricultural Income
2 Section 10(2) Exemption to amount received by co-parcener from HUF
3 Section 10(2A) Exemption towards share of income from firm/LLP
4 Exemptions towards interest to non-residents | Section 10(4) & 10(4B)
5 Exemption on Tax paid by Govt or Indian concern on certain income of a foreign company
6 Section 10(7) Perquisites/allowances exemption to Govt employees serving outside India
7 Exemption- Section 10(8A) & section 10(8B) of Income Tax Act
8 Exemption towards commuted value of pension Section 10(10A)
9 Exemption towards retrenchment compensation received by workman Section 10(10B)
10 Section 10(10BC) Exemption towards compensation received on account of any disaster
11 Section 10(10C) Exemption of amount received on voluntary retirement
12 Exemption towards tax paid by employer on non-monetary perquisites: Section 10(10CC)
13 Section 10(10D) Exemption towards amount received under a Life Insurance Policy
14 Exemption for amount received from Statutory & Recognized PF
15 Exemption for payment from approved superannuation fund Section 10(13)
16 Income Tax Exemption on prescribed allowances/ benefits | Section 10(14)
17 Section 10(15) Exemption- Interest on Bonds, Debentures, Securities
18 Scholarship exemption | Section 10(16) | Income Tax Act 1961
19 Exemption towards income for administration of Charitable or Religious Institution
20 Section 10(32) Exemption | Income of minor clubbed with parent
21 Exemption for dividend income received from Indian Company | Section 10(34)
22 Section 10(34A) Exemption towards income received by a shareholder on buy back of shares
23 Section 10(35) Exemption towards income received from units
24 Section 10(37) Exemption towards Capital Gain arising on Compulsory Acquisition of Urban Agricultural Land

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