Medical Stipend Not Salary: ITAT Rules Rs 18.34 Lakh PG Medical Stipend Exempt From Income Tax under Section 10(16) :

Smt Lata from Rewari, Haryana, has secured significant relief from the Income Tax Department after the ITAT Delhi held that her Rs 18.34 lakh stipend was exempt from tax under Section 10(16) of the Income Tax Act, 1961.

Smt. Lata had received an Rs 18.34 lakh stipend from Aligarh Muslim University (AMU) for her post-graduation medical education in General Surgery and the compulsory residency training; she took advantage of the Section 10(16) tax exemption and paid no taxes. Lata, along with her PG degree, was also pursuing compulsory residency training.

The Assessing Officer (AO) treated the stipend as taxable salary instead of an exempt scholarship. Lata, being aggrieved by the AO’s decision, approached the Commissioner of Income Tax (Appeals) [CIT(A)]; however, the AO’s decision was upheld, and the appeal was dismissed. Subsequently, Lata filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi. Chartered Accountant Anirudh Bharadwaj represented her before the Tribunal. Judicial Member Satbeer Singh Godara heard the matter and passed the order on July 30, 2026.

According to the provisions of Section 10(16) of the Income Tax Act, scholarships granted to students to meet the cost of education are exempt from tax. However, the tax treatment depends on the actual purpose of the payment and not merely on whether it is called a stipend, fellowship or scholarship. If the payment is essentially remuneration for services or employment, it can be taxable.

In the present case, the Tribunal relied on an earlier decision in Hiteshi Aggarwal v. PCIT, where a stipend received during postgraduate medical education was held eligible for exemption under Section 10(16). The Tribunal noted that Lata was a postgraduate medical student and that the stipend was connected with her MS (General Surgery) course and compulsory residency training.

Consequently, the Tribunal held that the stipend was linked to her education rather than an ordinary employer-employee relationship and directed deletion of the Rs 18.34 lakh addition. Accordingly, Lata was not required to pay income tax on the stipend.