Companies routinely conflate stipend and salary, and the confusion costs them. A stipend is a learning allowance paid during structured training or education. Salary is wages paid for work performed inside an employer-employee relationship. They sit in different parts of Indian law and get taxed differently.
Mislabeling the payroll line can reclassify the person receiving it. A “stipend” paid to someone doing the work of a full-time employee can bring in EPF liability, ESI coverage, minimum wage exposure, and back-contributions on audit. Treating a genuine apprentice as an “employee” has the opposite problem: it pulls in benefit obligations the Apprentices Act was designed to carve out.
Demand for clarity has grown with scale. India’s organised internship market grew 25% in 2024, per Internshala’s Annual Internship Trends Report, with average stipends at ₹8,000 per month and top offers touching ₹1,00,000. The Prime Minister’s Internship Scheme (PMIS), launched in October 2024, plans 1 crore placements over five years at ₹5,000 per month. Both have pushed stipend compliance into mainstream HR workflows.
What is a Stipend?
A stipend is a fixed sum paid to a trainee, intern, apprentice, researcher, or student during a period of structured learning. The purpose is education or training rather than productive labour. It can be mandatory (apprentices under the Apprentices Act, 1961), scheme-linked (PMIS, NAPS, NATS, research fellowships), or purely contractual (a company internship with no statutory floor).
Indian labour law does not define “intern” or “trainee” uniformly across statutes. Each central and state act decides whether a person on a stipend qualifies as an “employee” for its own purposes, and that patchwork is where most compliance problems begin.
Stipend arrangements typically carry no guarantee of employment at the end of training, no entitlement to leave or gratuity, and no bonus. They aren’t tied to performance appraisals or increments the way a salary structure is.
What is a Salary?
Salary is monetary and non-monetary compensation paid by an employer to an employee for services rendered under a contract of employment. Section 17 of the Income-tax Act, 1961 gives it an inclusive definition that covers wages, annuity, pension, gratuity, fees, commission, perquisites, advance salary, and profits in lieu of salary.
The pre-condition for any payment to be taxed as salary is an employer-employee relationship. Absent that relationship, the Income Tax Department treats the income as business income or income from other sources, not salary.
Salary carries a chain of statutory obligations that stipends usually don’t: provident fund contributions, ESI where the wage ceiling is met, gratuity after five years, bonus under the Payment of Bonus Act, paid leave, and minimum wage protection under the Code on Wages, 2019.
Stipend vs Salary: Comparison Table
Across statutory framing, tax treatment, and benefit obligations, the two pay types diverge in ways that matter for every HR team running a mixed workforce. The table below consolidates those differences in one view, before later sections unpack each line.
| Parameter | Stipend | Salary |
| Primary purpose | Support during learning or training | Compensation for work performed |
| Governing law | Apprentices Act (if apprentice); otherwise contractual | Code on Wages 2019; Income-tax Act; sector acts |
| Employer-employee relationship | Usually absent (except reclassified cases) | Essential |
| Minimum amount | Only for apprentices under the Act | Floor and state-notified minimum wages apply |
| PF, ESI, gratuity, bonus | Generally not applicable | Applicable (subject to thresholds) |
| Taxability | Often exempt under Section 10(16); taxable if work-based | Fully taxable as salary income |
| TDS | Only if treated as salary (Section 192) | Section 192 TDS mandatory |
| Form 16 | Issued only if TDS is deducted | Mandatory where salary crosses threshold |
| Duration | Fixed training period | Till termination or resignation |
| Post-training job offer | Not automatic | Continuing employment is the arrangement |
Apprentice vs Intern vs Trainee: Why the Label Matters
The label on the offer letter changes the law that applies. An apprentice engaged under the Apprentices Act, 1961 sits outside the definition of “employee” in both the EPF Act and the Code on Wages, 2019, effective 21 November 2025. That carve-out is why a formally registered apprentice does not trigger minimum wage obligations, PF contributions, or ESI coverage. TPB’s walkthrough of apprenticeship compliance under the Apprentices Act covers registration, duration, and the full obligation chain.
Interns have no dedicated statute in Indian labour law. The word is absent from the EPF Act, the ESI Act, the Industrial Disputes Act, and the Code on Wages. That silence isn’t protection. If an intern performs the same tasks as a regular employee under the same supervision, enforcement authorities can reclassify the relationship, and every benefit obligation attached to employment comes with it.
Trainees occupy the middle ground. Where training is governed by certified standing orders, the trainee is treated similarly to an apprentice and excluded from “employee” under Section 2(f) of the EPF Act. Without standing orders, the trainee is usually treated as an employee for statutory purposes. The Supreme Court in Regional Provident Fund Commissioner vs Central Arecanut and Cocoa Marketing (2006) and multiple EPF Appellate Tribunal orders have reinforced this distinction.
Is a Stipend Mandatory?
Stipend payment is mandatory only for apprentices engaged under the Apprentices Act, 1961, at rates notified by the Central Government. It is also mandatory under government schemes such as PMIS, NAPS, and NATS, where the scheme design fixes the minimum.
Beyond those cases, internship and trainee engagements carry no statutory floor. An employer can run an unpaid internship, and no central labour statute specifically prohibits it. State-level Shops and Establishments Acts don’t usually extend to interns unless they are treated as employees.
Unpaid internships still carry reputational and regulatory risk. If an unpaid intern is doing core business work on employer direction, authorities can reclassify the arrangement as unpaid employment, triggering minimum wage violations under the Code on Wages. The practical bar for a defensible unpaid engagement is narrow: short duration, academic credit, clear learning plan, and no substitution for regular employee work.
How Much Stipend Should Companies Pay?
Revised rates for registered apprentices took effect on 11 September 2025 through the Apprenticeship (Amendment) Rules, 2025. The current monthly minimums are the published floor, and establishments can pay more.
| Apprentice Category | Minimum Stipend (per month, 1st year) |
| School pass-outs (Class 5 to Class 9) | ₹6,800 |
| School pass-outs (Class 10) | ₹8,200 |
| School pass-outs (Class 12) | ₹9,600 |
| National or State Trade Certificate holders | ₹9,600 |
| Technician (vocational) apprentice/ vocational certificate holder/ sandwich course (diploma institute students) | ₹9,600 |
| Technician apprentices or diploma holders in any stream or sandwich course (degree institute students) | ₹10,900 |
| Graduate or degree apprentices in any stream | ₹12,300 |
Rates step up 10% in the second year and a further 15% in the third, where applicable. Under PM-NAPS, the government reimburses 25% of the prescribed stipend up to ₹1,500 per apprentice per month via direct benefit transfer. Under NATS, the Centre bears 50% of the stipend for graduate, technician, and technician (vocational) apprentices.
Interns outside the Apprentices Act have no legal benchmark, and market data is the only guide. Internshala’s 2024 report placed the average internship stipend at ₹8,000 per month, with premium offers in investment banking, consulting, and tech reaching ₹1,00,000. Indeed, India’s 2025 analysis put the national average higher at ₹25,432, skewed by senior technical internships in Bengaluru, Hyderabad, and Mumbai.
Is a Stipend Taxable?
Stipend taxability turns on one question: is the payment a scholarship supporting education, or compensation for work? Section 10(16) of the Income-tax Act, 1961 exempts “scholarships granted to meet the cost of education” from tax, with no monetary cap. Where the employer-trainee relationship looks like employment, and the stipend compensates for work output, the Income Tax Department treats it as salary under Section 17, subject to TDS under Section 192 on a normal slab basis.
Judicial precedent leans toward the scholarship reading where education is central. In a July 2026 order, the Income Tax Appellate Tribunal (ITAT) Delhi allowed exemption on a ₹18.34 lakh stipend received by a postgraduate medical student from Aligarh Muslim University, holding that the payment was linked to compulsory residency and PG education. ITAT Chandigarh reached the same conclusion in Hiteshi Aggarwal vs PCIT, reaffirming earlier precedents such as CIT vs V.K. Balachandran (Madras HC) and Dr Rahul Tugnait vs ITO.
For most internship stipends, the practical position is simpler. Annual stipends under ₹2,50,000 (the basic exemption limit under the old regime) sit below the taxable threshold anyway. An intern on ₹12,000 per month earns ₹1,44,000 across a year and attracts no tax even if treated as salary.
PF, ESI and Other Benefits for Interns and Apprentices
Statutory social security applicability depends on how the engagement is structured. Section 2(f) of the EPF Act, 1952 excludes apprentices engaged under the Apprentices Act, 1961 or under certified Standing Orders. Every other trainee is presumed to be an “employee” and triggers PF obligations once the ₹15,000 monthly wage ceiling is crossed.
ESI follows the same logic. Section 2(9) of the ESI Act, 1948 excludes apprentices under the Apprentices Act. Other trainees and interns are covered where monthly wages are up to ₹21,000 (₹25,000 for persons with disabilities). An intern paid ₹12,000 who is reclassified as an employee attracts both contributions, with back-pay exposure on inspection. The table below summarises applicability.
| Statutory Benefit | Apprentice (under Apprentices Act) | Intern / Trainee (if reclassified) |
| EPF | Not applicable | Applicable if conditions met |
| ESI | Not applicable | Applicable up to ₹21,000 wages |
| Gratuity | Not applicable | After 5 years of continuous service |
| Bonus (Payment of Bonus Act) | Not applicable | Applicable up to ₹21,000 wages |
| Minimum Wages | Apprentice stipend rules apply | Code on Wages floor applies |
| Paid Leave | Only training leave per Apprenticeship Rules | As per Shops & Establishments Act |
When Does an Internship Become Employment?
Reclassification risk rests on four tests that courts and enforcement officers apply together. Nature of work is the most decisive: if the intern performs the same tasks as a regular employee of the same grade, the label on the offer letter loses weight. Control follows: where the employer directs daily work, sets attendance expectations, and exercises disciplinary control, an employment relationship is inferred.
Duration adds weight. Short-term engagements with a clear academic link rarely attract reclassification. Rolling multi-month engagements over one year often do, especially when the intern is renewed into substantially similar roles without documented learning progression. Payment closes the frame: a stipend that approximates or exceeds the applicable minimum wage for comparable work makes the compensation-for-services characterisation almost automatic.
Reclassification is retrospective. Authorities can demand PF and ESI arrears from day one, add interest and damages under Sections 7Q and 14B of the EPF Act, and impose penalties under the Code on Wages. Teams running large intern cohorts should audit these tests annually as part of their routine PF, ESI, PT and TDS payroll compliance review.
Internship Offer Letter and Stipend Agreement
Paper trail is the single strongest defence against reclassification. The offer letter should state that the engagement is an internship or training rather than employment, and explain why: learning objectives, training plan, the supervisor’s role as mentor, and the academic context where one exists.
The stipend agreement itself fixes the amount, payment schedule, start and end dates, training content, confidentiality, IP ownership, and termination conditions. It should not promise continuing employment, use job titles that match regular roles, or reference employee handbook provisions meant for full-time staff. Inclusions worth building in:
- Clear statement that no employer-employee relationship is created
- Acknowledgement that statutory benefits (PF, ESI, gratuity, bonus) don’t apply
- Working hours capped at training-appropriate levels
- Insurance coverage where training involves on-site work
- Certificate of completion rather than experience letter where no job follows
PMIS and NAPS come with centrally prescribed templates. Employers running structured youth internship programs typically layer these with their own confidentiality and conduct annexures.
Internship Offer Letter and Stipend Agreement Template
The template below is a starting point that teams can adapt to their sector and risk appetite. It consolidates the clauses most frequently cited in favourable tribunal outcomes, and should be reviewed by counsel before deployment.
[On Company Letterhead]
[Date]
[Intern Name]
[Address]
Subject: Internship Offer, [Role / Function]
Dear [Name],
This letter extends an offer of internship with [Company Name] (“Company”), a learning engagement on the terms set out below.
This is an internship and not employment. No employer-employee
This is an internship and not employment. No employer-employee relationship is created by this arrangement, and the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, the Employees’ State Insurance Act, 1948, the Payment of Gratuity Act, 1972, the Payment of Bonus Act, 1965, and the Code on Wages, 2019 do not apply to you in this capacity.
1. Duration
Start date: [DD/MM/YYYY]
End date: [DD/MM/YYYY]
The internship concludes on the end date without further notice.
2. Stipend
A monthly stipend of ₹[Amount] (Rupees [Amount in words]) will be paid on or before the [X]th of each month, subject to satisfactory engagement and attendance. The stipend is a learning allowance and not wages for services rendered.
Taxability will be determined under applicable provisions of the Income-tax Act, 1961.
3. Learning Objectives and Supervision
Training coverage: [list skills, knowledge areas, project].
Supervisor and training mentor: [Name, Designation]. The supervisor’s role is instructional, not managerial.
4. Working Hours
Training hours are [X] hours per day, [Y] days per week, not exceeding 40 hours in any week. No overtime, shift allowance, or statutory leave entitlements apply.
5. Confidentiality
All information, data, processes, client details, and trade secrets of the Company accessed during this internship will be treated as strictly confidential, during and after the internship period.
6. Intellectual Property
All work product, including code, documents, designs, and ideas created in the course of this internship, will vest solely with [Company Name].
7. Insurance
You will be covered under the Company’s [policy name] for on-site training activities. [Delete clause for fully remote engagements.]
8. Termination
Either party may terminate this internship with [X] days’ written notice. The Company may terminate immediately for breach of confidentiality or misconduct.
9. On Completion
Upon satisfactory completion, you will receive a Training Completion Certificate. This document is not an experience letter, and the Company makes no representation of continuing engagement or employment at the end of the internship.
Please indicate acceptance by countersigning below and returning a copy to [HR Contact].
For [Company Name] Accepted:
________________________ ____________________
[Authorised Signatory] [Intern Name]
[Designation] Date:
Date:
Common Stipend Compliance Mistakes
Enforcement data and tribunal orders surface the same errors year after year. Most trace back to template choices and recordkeeping rather than wilful evasion. The patterns worth cataloguing:
- Paying “stipends” to full-time workers. Labelling regular workers as “trainees” to avoid PF and ESI is the most frequently reclassified arrangement.
- Skipping apprentice registration. Informal apprenticeships without portal registration forfeit the Apprentices Act carve-out, and the apprentice becomes an employee for all statutory purposes.
- Ignoring the September 2025 stipend hike. Paying pre-revision rates (₹5,000–₹9,000) violates Rule 11 of the Apprenticeship Rules, 1992, as amended.
- Deducting TDS without a salary relationship. Section 192 TDS on a genuine scholarship stipend contradicts the Section 10(16) exemption and complicates the intern’s return filing.
- Missing NAPS reimbursement claims. Paying apprentice stipends without claiming the 25% government reimbursement forfeits the subsidy.
- Using one template for apprentices and interns. A single template papers over statutory distinctions and weakens the employer’s position if challenged.
Stipend Compliance Checklist for Employers
A tight internal checklist prevents most of the mistakes above and makes audit responses faster. The version below adapts to the size and sector of the establishment.
| Check | Action |
| Role classification | Apprentice, intern, trainee, or employee? Document the basis. |
| Apprentice registration | Contract registered on apprenticeshipindia.gov.in? |
| Stipend rate | Meets the September 2025 revised minimum for the category? |
| Offer letter | Explicitly states no employer-employee relationship? |
| Working hours | Capped at training-appropriate levels, below 48 per week? |
| PF and ESI | Exemption basis documented, or enrolled if applicable? |
| TDS | Applied only where the stipend qualifies as salary under Section 17? |
| NAPS reimbursement | Monthly claims filed for eligible apprentices? |
| Insurance | On-site trainees covered (including PMJJBY/PMSBY for PMIS interns)? |
| Completion documentation | Training certificate issued, distinct from experience letter? |
Compliance under the four labour codes adds further checks around wage ceilings and the uniform definition of wages, both of which affect how stipend-adjacent payments are treated.
In the End…
The stipend-salary line is a legal and tax distinction before it is an HR one, and the price of blurring it falls on the employer. Three actions move the dial. Audit every stipend arrangement against the four reclassification tests and document the result.
Update apprentice stipend rates to the September 2025 minimums if not already applied. Reissue intern and trainee offer letters on templates that keep the employer-employee relationship clearly off the table. Teams that handle this as a scheduled quarterly task rarely face the retrospective PF and ESI demands that cost the most.
FAQs
What is the difference between a stipend and a salary in India?
A stipend is a learning allowance paid during structured training, internship, or apprenticeship, with education as its primary purpose. A salary is wages paid for work performed under an employer-employee relationship. Salary carries statutory obligations like PF, ESI, gratuity, and bonus; a stipend usually does not.
Is paying a stipend mandatory for interns in India?
No. Stipend payment is mandatory only for apprentices registered under the Apprentices Act, 1961 and for government schemes like PMIS, NAPS, and NATS. Private internships carry no statutory minimum, though unpaid engagements can be reclassified as unpaid employment if the intern does core business work.
Is a stipend taxable under Indian income tax law?
It depends on the nature of the payment. Section 10(16) of the Income-tax Act, 1961 exempts stipends that qualify as scholarships supporting education, with no monetary cap. If the stipend compensates for work output inside an employer-employee relationship, it is taxed as salary under Section 17 and attracts TDS under Section 192.
What is the minimum stipend for apprentices in India in 2026?
As per the Apprenticeship (Amendment) Rules, 2025 effective 11 September 2025, first-year minimums range from ₹6,800 for Class 5–9 pass-outs to ₹12,300 for graduate apprentices. Rates step up 10% in the second year and a further 15% in the third, where applicable.
Do interns and trainees qualify for PF and ESI?
Apprentices engaged under the Apprentices Act are expressly excluded from both the EPF Act and the ESI Act. Other interns and trainees are presumed to be employees: PF applies once monthly wages cross ₹15,000, and ESI applies up to ₹21,000 (₹25,000 for persons with disabilities).
When can an internship be reclassified as employment?
Authorities apply four tests together: nature of work, degree of employer control, duration of engagement, and the quantum of payment. If the intern performs the same tasks as a regular employee, works under daily direction, is renewed over long periods, or is paid at or above the applicable minimum wage, reclassification is likely. Reclassification is retrospective and triggers PF and ESI arrears from day one.
What is the tax status of a stipend under ₹2,50,000 a year?
It attracts no tax liability in practical terms. ₹2,50,000 is the basic exemption limit under the old regime, so an intern earning ₹12,000 a month (₹1,44,000 a year) falls below the threshold even if the stipend is treated as salary.
Is an internship offer letter the same as an employment contract?
No, and it should not read like one. The internship offer letter must state that no employer-employee relationship is created, document learning objectives and supervisor involvement, cap working hours at training-appropriate levels, and promise a Training Completion Certificate rather than an experience letter where no job follows.
Does the government reimburse any part of the apprentice stipend?
Yes. Under PM-NAPS, the Centre reimburses 25% of the prescribed stipend up to ₹1,500 per apprentice per month via direct benefit transfer. Under NATS, the Centre bears 50% of the stipend for graduate, technician, and technician (vocational) apprentices.
What is the Prime Minister’s Internship Scheme (PMIS) stipend?
PMIS, launched in October 2024, offers ₹5,000 per month to selected interns and targets 1 crore placements over five years. The scheme comes with a centrally prescribed template that employers typically layer with their own confidentiality and conduct annexures.
