Scholarship is the amount paid to any person to meet the expenses to be incurred on ‘Cost of Education’. Any amount received by a person as scholarship is considered as income in his hands. However, such amount received by a person is exempt if the same is received for the purpose of meeting the education expenses.
The term ‘cost of education’ takes within its ambit not only tuition fee but all other incidental expenses incurred for acquiring education. The word “education” includes within its ken knowledge, understanding and reflection.
Any amount received by way of scholarship to cover the education cost is eligible for exemption under section 10(16) of the Income-tax Act, 1961. The amount though deemed as income of the assessee, shall be exempt in the hands of the receiver.
The only condition to claim exemption with respect to such scholarship income is that it is for meeting the education expenses only. The fact that the recipient does not spend the whole amount towards education or that he is able to save something out of it would not detract from the character of payment being one for scholarship. Additionally, even though scholarship is received by any person of foreign origin, it is held exempt in the hands of the received provided the purpose of the payment is meeting the education cost. If the assessee has received the scholarship from foreign institute to aid his studies and research, even though the amount so received is taxable in the source country, the same shall not be taxed in his hands.
The receiver of the scholarship is eligible to claim exemption under section 10(16). Further, any sum received by employee directly from his employer towards scholarship of his child is also eligible for exemption. The basis for exemption is that the payment shall be made to meet the cost of education and the sole discretion for the payment shall be the benefit of the receiver. Even though the payment is made by the employer and is received directly by the child concerned, such amount shall not be treated as income in the hands of the employee, rather as exempted income in the hands of the receiver.
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