Income-tax Act does not tax the scholarship money received to meet the cost of education.
This relief is available to every person. He can be an Indian or a foreign citizen.
He can get the scholarship to pursue his education in any school, college, foreign university, Open University, on Mars or on Moon.
The scholarship money is tax-free. Even if he does not spend the whole amount towards education or that he can save something out of it.
This exemption is available when the scholarship is granted to meet the cost of education. The ‘cost of education’ does not mean only tuition fee but all other incidental expenses incurred for acquiring education, that is, hostel fees, books, so on and so forth. Expenditure on night outs, pubs or valentine might be necessary but are not incidental. No exemption if scholarship money is used for leisure purposes.
Scholarship is money but every money is not scholarship. Monetary rewards by the school or any person to the meritorious students is not a scholarship. If such rewards exceed Rs. 50,000 in a year, it shall be taxable as a ‘gift’. The concept of ‘deemed gift’ has been discussed in subsequent chapters.
Scholarship can be received by the father from his employer or by the children directly from the father’s employer. No tax is payable either by the father or by the children as long as it is paid towards meeting the cost of education.
Your Takeaway: The scholarship is tax-free in every situation as long as it is received to meet the cost of education.