Internship Stipend Deductions: Salary TDS or Fee TDS?

The two provisions, side by side

Both are in the Income-tax Act, 2025_Bill.pdf), in force for tax year 2026-27 (1 April 2026 to 31 March 2027).

We have not verified a rule that settles which one applies to an internship stipend. That depends on the nature of the engagement. What follows is the arithmetic for each outcome, and the questions to ask.

Hypothetical stipend: ₹20,000 a month for six months

The internship runs from October 2026 to March 2027, for a total of ₹1,20,000. You have no other income in the tax year.

If paid as salary: the payer estimates ₹1,20,000 of salary. After the ₹75,000 standard deduction, total income is ₹45,000. That is below the ₹4,00,000 nil slab, so the average rate is 0% and nothing is deducted. Your monthly credit is ₹20,000, less any PF or professional tax deductions, if applicable.

If paid as professional fees: 10% is deducted once the threshold applies. If the payer deducts on every payment from the first month, you receive ₹18,000 a month, and ₹12,000 is withheld over six months. If they deduct only after cumulative payments pass ₹50,000, the first two months are paid in full. The third month's deduction then catches up on the earlier payments. The threshold's wording decides which method is right, so ask the payer which one they apply.

If paid as technical fees: 2% gives ₹19,600 a month, or ₹2,400 in total.

# Synthetic stipend. Compares the cash withheld under each treatment.
def withheld(monthly, months, treatment, threshold=50000, catch_up=True):
    rate = {"salary": 0.0, "professional": 0.10, "technical": 0.02}[treatment]
    paid, deducted, schedule = 0, 0.0, []
    for _ in range(months):
        paid += monthly
        if paid > threshold or not catch_up:
            due = rate * paid - deducted       # catch up on earlier months
        else:
            due = 0.0
        deducted += due
        schedule.append(round(monthly - due))
    return schedule, round(deducted)

for t in ("salary", "professional", "technical"):
    print(t, withheld(20000, 6, t))
print("professional, from month one:", withheld(20000, 6, "professional", catch_up=False))

The catch-up output shows the practical difference: the third month drops to ₹14,000 because it carries ₹6,000 of deduction for three months at once. If rent falls due that month, plan for it. The salary line returns zero deductions only because the average rate on ₹45,000 of total income is nil. A higher stipend, or other salary in the same tax year, changes that.

What each treatment means when you file

Your total income of ₹1,20,000 is far below the ₹12,00,000 line where the new-regime rebate under section 156 stops. Whichever treatment applies, the tax due is nil. The refund of anything withheld comes only through the return, and you will need the payer's TDS certificate or the credit against your PAN on the e-filing portal.

The treatment also changes which part of the return the income goes in:

• As salary, it goes in the salary schedule with the standard deduction.
• As professional or technical fees, it is income from business or profession. The standard deduction does not apply. Section 202(4) then treats a regime choice differently for someone with business income: the option must be exercised by the return due date and can be withdrawn only once. The department's slab page lists both regimes' rates.

If the payer's treatment does not match your internship letter, ask them to explain it before the next payment, not at filing time.

Three questions for the payer

1. 1"Under which section is TDS deducted on my stipend?"
2. 2"Is the ₹50,000 threshold applied on each payment or cumulatively?"
3. 3"Will I receive a TDS certificate, and when?"

For what happens when the same flat-rate deduction applies to freelance invoices, see client TDS on freelance invoices. Our Data Analyst programme runs 3–4 months and is aimed at people moving from an internship into a first analyst role.