Scholarship exemption {Section 10(16)}

The Section 10(16) of the Income Tax Act, 1961 provides an exemption towards the scholarship awarded to meet the expenses on education. This article gives a gist about the exemption available under Section 10(16).

Provisions of Section 10(16)–

Colloquially, ‘scholarship’ means a grant, achieved with regards to the academic or other achievement, and is made to support a student with his education.

The provisions of Section 10(16) exempt any scholarship awarded to meet the costs for his/her education. In short, any scholarship achieved by the deserving students to meet the expense of education is exempted from income tax.

It is really important to comprehend that the basis of exemption is that the scholarship is to be used only to meet the education expenses.

Provisions of section 10(16) with simple examples-

1. To be eligible for exemption under Section 10(16), amount should be received by the employee towards the scholarship of his child, from the employer.
2. To be eligible for exemption under Section 10(16), amount should be received by the employee to aid his own studies and research from the employer.

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

Any amount paid to the assessee for his services as an intern in a medical hospital, where it is necessary to serve as an intern for a person whoever joins a medical school, the internship cannot be regarded as a scholarship to qualify for exemption clause under Section 10(16).

Examples of scholarships exempt under Section 10(16)

1. The Annual Allowance granted to retiring research scientists and Junior and Senior research fellowships are granted by CSIR, New Delhi.
2. Stipend of research fellowships for who are working under the National Commission for compilation of History of Scientists, India under the auspicious National Institute of Scientists of India.
3. Fulbright grants given to Fulbright students described as ‘maintenance allowance’.
4. Fulbright grant given to American tutors described as `maintenance allowance’ who are prosecuting studies in India.
5. Junior/Senior fellowships awarded by the Department of Atomic Energy.
6. Any kind of financial assistance to teachers in the universities for undertaking research in science subjects and humanities.
7. Maintenance allowance granted to foreign trainees under the scheme of the International Association for the students’ exchange for Technical Experience.
8. Research fellowship in engineering, humanities, technology, and science subjects.
9. National research fellowships are granted to German nationals awarded by the Ministry of Education.
10. When a professor of mathematics is awarded a grant-in-aid by a foreign university for conducting an advanced research in the field of mathematics, the amount of such grant-in aid would be considered scholarship and exempted under clause 16 of Section 10.
11. Any type of ‘discretionary scholarship’ granted by the employer to the children of employee can’t be considered as a perquisite for children of employees as no right is created in their favor. Even if such ind of scholarship is regarded as a perquisite, it would be exempt only in the hands of the recipient.

Amount of exemption

The total amount of scholarship granted to meet the cost of education is available as an exemption and there is no upper limit prescribed as such under the Act.