Not everyone starts with a salary, and not every field and role has a salary. Some have a stipend. Stipends can be best described as a type of compensation one receives after rendering services or while reviewing training of some sort. However, in some cases, stipends can come in addition to a salary as well.
This article will discuss everything important about stipends: what they are, why they are important, how they are calculated and much more.
What is a Stipend?
A stipend is a fixed amount of money provided regularly to individuals for services rendered or to cover specific expenses. Commonly, stipends help offset costs for unpaid interns, compensate volunteers in non-governmental organisations (NGOs), or cover business-related expenses for employees. Employers typically pay stipends on a weekly or monthly basis to assist with basic expenses such as accommodation, meals, and transport.
Stipends act as a financial support mechanism, helping individuals manage living costs while engaging in roles that may not offer a full salary. For instance, stipends are commonly awarded to interns during their apprenticeship or to those involved in fellowship programmes, allowing them to focus on their roles without worrying about essential expenses.
How Does a Stipend Work?
A stipend differs from a salary in that it is not tied to the specific services provided or hours worked. While a salary is paid to an employee on a company’s payroll as compensation, a stipend is a set allowance designed to help cover certain expenses. Minimum wage laws do not apply to stipends, and the employer usually determines the amount based on factors like cost of living, work type, and necessary expenses associated with the role.
You may be able to negotiate a higher stipend if it does not sufficiently cover basic costs. For instance, if you are an unpaid research assistant commuting daily, you could discuss the commuting costs with your employer to justify a potential increase in the stipend. In some cases, employers may also offer benefits in addition to the stipend, such as funding for education, accommodation, food, or health insurance.
Though both stipends and salaries are fixed monthly payments, their purposes are quite different. A stipend functions as financial support, often thought of as a “training allowance,” helping those involved in internships, apprenticeships, or other learning-based roles manage living expenses rather than serving as direct compensation for work.
The Department of Labour (DOL) sets clear guidelines on the use of stipends, emphasising that companies should not use them as a substitute for regular employees. The primary focus must be on the development of the individual, not solely on the company’s gain. Stipends are generally modest, especially for interns, often ranging between INR 10,000-15,000 per month, though amounts can vary depending on the situation. For individuals in training roles, stipends provide valuable financial support that eases the cost of living while they gain experience.
Eligibility for a Stipend
Certain roles often qualify individuals for a stipend rather than a full salary. Interns, researchers, assistants, clergy, junior associates, and trainees are commonly eligible for stipends, as these positions are typically linked to learning, training, or specialised assistance. While some individuals in these roles may eventually earn a full-time salary, organisations often prefer offering a stipend due to the nature of these roles, which are focused more on development and gaining experience rather than direct employment.
How Are Stipends Calculated?
The method for calculating a stipend varies based on several factors, including the type of stipend, source of funding, and its intended purpose. Here’s a closer look at these considerations:
Type of Stipend
- Scholarships: Calculations often follow a formula based on academic merit and financial need.
- Research Grants: This may involve proposals and negotiations with the funding body.
- Training Allowances: These are often fixed amounts based on programme duration or estimated living expenses.
- Company Stipends: Factors like employee level, company policy, and regional cost of living typically determine these amounts.
Source of Funding
- Government or Public Institutions: Often adhere to standardised formulas or regulations.
- Private Entities: Typically have more flexibility and may set their own criteria.
- Individual Agreements: Often involve personal agreements and individual negotiations.
Purpose of the Stipend
- Covering Specific Needs: Stipends may be calculated based on expected costs, such as research materials or gym memberships.
- General Living Expenses: Calculations may take into account local cost of living.
- Compensation for Services: In some cases, stipends can be aligned with salary scales or hourly rates for specific services.
General Calculation Guidelines
- Fixed Amounts: Many stipends are predetermined, such as a set monthly payment.
- Cost-Based Calculations: For needs-based stipends, recipients may submit estimated expenses, which are then reviewed and approved.
- Needs Assessment: Some programmes conduct assessments or interviews to determine an appropriate stipend amount.
- Negotiation: In certain cases, such as research grants or private stipends, the amount may be open to negotiation.
Each stipend calculation method is designed to ensure that recipients receive the appropriate financial support to cover their specific needs while engaged in educational or training programmes.
Types of Stipends
While there are multiple types of stipends available now, these are some of the most common ones:
Academic Research
Academic research grants function like fellowships for researchers, similar to scholarships but designed for experienced scientists. Awarded by institutions or external sponsors like corporations or non-profits, these grants provide essential financial support, allowing researchers to immerse themselves fully in their projects. Without the need to seek additional funding, researchers can focus on what truly matters: advancing knowledge and making significant discoveries.
Expense-Related Stipends
Stipends aren’t limited to general financial support; they can be allocated specifically to cover particular expenses. For example, students may receive funds for essential equipment like laptops, or trainees might receive commuter credits. These targeted stipends help remove financial barriers, enabling recipients to focus on their academic or professional goals without worrying about specific costs.
Job Training
This type of stipend supports recent graduates or employees seeking to enhance their careers through training and development programmes. By covering training expenses, these stipends promote professional growth, benefiting both employees and the organisation as they develop new skills and competencies.
Wellness Programmes
Companies may also provide wellness stipends, which contribute to the holistic well-being of their employees. Covering options like studio memberships, personal training, or mental health services, wellness stipends support physical and mental health, reinforcing that a healthy workforce is both productive and engaged.
Each type of stipend addresses distinct needs, offering financial support that empowers individuals to focus on their development, health, and contributions, whether in academic research or the workplace.
Stipends vs. Salaries
A salary is a fixed amount of money paid regularly, usually on an annual basis, as compensation for work performed. It reflects the employee’s skills, role, and responsibilities within the organisation and is typically aligned with employment contracts and minimum wage regulations. Salaries are paid in exchange for specific tasks and duties completed over a set period, often on a weekly or monthly schedule.
In contrast, a stipend is not regarded as direct compensation for work done but rather as financial support to help cover various expenses. Stipends are commonly awarded to individuals undertaking internships, training programmes, or research fellowships, where the primary focus is on learning and professional development rather than formal employment. They are often intended to offset certain costs, such as travel, accommodation, or other living expenses, allowing recipients to participate in valuable experiences without the burden of covering all costs independently.
Because stipends are classified as support rather than wages, they tend to be lower in amount compared to salaries, often below minimum wage requirements and are generally not subject to state wage regulations. The stipend amount is typically decided at the discretion of the sponsoring organisation or employer, based on factors like cost of living, the nature of the programme, and organisational budget. This flexibility allows employers to offer stipends without being bound by the same legal requirements as they would for traditional salaries.
FAQs about Stipends
Is a stipend taxable?
Although employers do not treat stipends as salaries and, therefore, do not withhold income tax, individuals are still required to pay tax on their income, including stipends. Under Section 17(1) of the Income Tax Act of 1961, taxable income includes wages, commissions, and payments received as an employee. However, Section 10(16) of the Act provides a tax exemption for scholarships used to cover educational expenses.
How often are stipends paid to an employee?
The frequency of stipend payments varies depending on the organisation and purpose. Stipends may be paid weekly, monthly, or sometimes annually, though they are rarely annual, as stipends are intended to provide regular support. Often, stipends are disbursed as frequently as salaries to help recipients meet ongoing costs.
What is Tax Deducted at Source (TDS)?
TDS is a system where employers deduct tax at the source before disbursing payment to the employee and then pay the tax to the government on the employee’s behalf. However, not all businesses deduct TDS from stipends, especially if they consider the recipient a contractor rather than an employee. If your employer deducts TDS, you will receive Form 16, which should be included as income when filing your tax return. If TDS isn’t deducted, stipends are generally taxable as "income from other sources." Deductions are available to help reduce the taxable amount.
How does an honorarium differ from a stipend?
Stipends are regular payments provided to trainees or employees over a defined period, usually as support for living expenses during training. Honorariums, however, are one-off payments made to compensate for services rendered voluntarily, often by NGOs or philanthropic organisations. For example, government employees may receive honoraria for additional tasks such as setting exam papers, evaluating scripts, or serving on statutory bodies like Lok Adalats.
Does an internship stipend require you to file an Income Tax Return (ITR)?
Yes, the Income Tax Act of 1961 considers stipends as taxable income, so you are required to file an ITR if your stipend falls within the taxable income range. However, stipends awarded as scholarships for educational expenses are exempt from taxation under Section 10(16) of the Act. If an internship is likely to lead to employment, the employer may deduct TDS based on your stipend amount. Filing an ITR allows you to claim deductions where applicable.
Why are stipends commonly used in education, and how do students benefit from them?
Stipends are widely used in education to support research, training, and academic pursuits. They help offset living and academic expenses, making education more accessible, particularly for students from limited financial backgrounds. Stipends also play a role in attracting and retaining talented individuals, as well as promoting diversity and equity within educational institutions.
Is a stipend the same as a scholarship or fellowship?
No, a stipend is different from a scholarship. While a stipend can be part of a scholarship or fellowship, not all scholarships or fellowships include a stipend. The key difference lies in purpose: scholarships usually fund tuition or academic expenses, while stipends cover living costs associated with training or research.
Do interns receive a stipend or a salary?
Interns typically receive a stipend rather than a salary. This stipend serves as financial support for the services they provide during their internship, which may include tasks such as research assistance, administrative duties, or completing assigned projects.
Who receives a stipend?
Stipends are generally provided to individuals who are not eligible for a regular salary or wage in return for their services. Common recipients include researchers, graduate students, interns, clergy, and apprentices, who receive stipends to cover living or project-related expenses.
What is the difference between a stipend and CTC?
CTC, or Cost to Company, refers to the total salary package an employer offers to an employee, including basic pay, allowances, reimbursements, and other compensations. In contrast, a stipend is a set amount offered primarily to cover living or academic expenses for individuals in training or research roles, rather than serving as a formal salary.
