Recruiting a Sales Trainee Off-Roll: How to Handle Stipend Tax Deductions?

Recruiting a Sales Trainee: Off-Roll Considerations

I need to recruit a Sales Trainee, but not on the company's rolls. How should I treat such recruitment? Should there be any tax deduction while paying the stipend? If so, under what section should this be addressed?

Regards

Instead of recruiting as a trainee under a stipend, you should consider them as a consultant. If recruited as a consultant, then you should deduct TDS at 10% as a professional fee.

Instead of recruiting trainees under a stipend, you should consider them as consultants. If recruited as consultants, then you should deduct TDS at a rate of 10% as a professional fee.

Why Not Deduct TDS Under Section 194C?

There is a definition of professional fee under the IT Act, which trainees do not fulfill.

Best Regards,
Divakar

Trainees/apprentices appointed by the government are exempt from income tax for the stipend paid to them. I am not clear as to how much you intend to pay the sales trainee. If it is within the tax limit, there is no problem. If it exceeds the limit, then it is better to treat him as a trainee on a temporary basis and deduct 10% for tax purposes.

Tax limit means which limits? Limits specified under TDS sections other than 192 or as per section 192?

Can you please provide some reference or notification of exemption on stipend paid by the Government? I am not able to understand why there is a 10% TDS when a trainee cannot be a professional. For consultants other than professionals, the TDS rate is either 2% or 1%.

Best Regards,
Divakar

Treating Trainees as Consultants

How can trainees be treated as consultants? Upon completion of the training period, they will transition to regular employment, isn't it? If the stipend is less than ₹2 lakh per annum, there are no tax implications.

Regards,
Pon

There was an opinion to treat them as consultants and deduct 10% TDS in the post; hence, I am asking how can you do that?

Understanding TDS for Trainees

The 2.0 Lakh limit comes into the picture only if you treat the trainee as an employee and there is an employer-employee relationship, which requires TDS deduction under section 192B. Is a trainee under stipend for a specified period considered an employee for IT purposes?

During training in a business enterprise, an employer-employee relationship is developed. There is no specific exemption available for stipend or training allowance, and it will be treated as income under the head of salaries. However, the stipend/scholarship received for meeting the cost of education or research is exempted from income tax. Many court rulings are available for this.

Pon

Employer-Employee Relationship in Trainee Appointments

The "employer-employee relationship" is a contractual term recognized by law when certain conditions are fulfilled. If you have studied the Income Tax Act, especially topics related to salary income, you may appreciate this better.

If we assume that there is an employer-employee relationship in appointing a trainee, all labor laws like EPF/ESI are applicable to them as well.

If there is an employer-employee relationship, then TDS falls under section 192B. There is no confusion whatsoever, and relevant provisions apply.

As far as I know, the stipend paid as per the Apprentice Act is exempt from TDS. One needs to register under this Act and follow the stipulations therein. (I am yet to come across such registrations.)

Usually, in the industry, trainees are not under regular employment. Hence, it is a contractual understanding, and TDS is deducted as per the provisions contained in section 194C. Trainees are not consultants nor professionals. Since the stipend is a small amount and usually below the taxable limit, even 1% is a huge TDS, and normally refunds need to be claimed.

Best Regards,
Divakar

As per my best knowledge, any trainee coming for training purposes is indirectly stating that their approach is to acquire knowledge or skills for the said reason. A stipend is paid, which is a periodic payment, especially a scholarship or fellowship allowance granted to a student. Here, the employee-employer relationship does not exist, and no labor law is applicable, whether it is ESI, PF, MW, TDS, etc.

But I would like the seniors to guide further.

You can refer to the cases highlighted in the article: The Hindu: Stipends are not taxable.

Best Regards,
Divakar

Tax-Free Stipend for Students

A stipend is only tax-free when a "student" is studying a course as per the rules of the university or AICTE. In such cases, the stipend is referred to as "Vidya Vetan".

Regards,
RAMAKANT

Thank you. The stipend is applicable in the case of an educational institute only. I think, in this case, the payment made to the "Trainee" can be treated as a contractual employee and handled under section 92A. Otherwise, it will fall under u/s 95j.

Regards,
Ramakant