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Opinion: Are Maharashtra MBBS Interns Being Unlawfully Taxed?

There’s been a perennial dissatisfaction regarding the stipend paid to MBBS interns in Maharashtra. The derisory sum of Rs 6000 per month has been denounced time and time again — it has been held as an outright mockery of the compensation towards the amount of work the interns actually put in. What makes it even more unsettling is the fact that, despite being exempt from employer-employee conditions, and being under no obligation to deliver professional service, the interns often function no less than regular hospital employees. What I’ll discuss here in this write up is another addition to the list of such things that make your gorge rise.

Dr Soham D Bhaduri
Dr Soham D Bhaduri

A sum of Rs 175 per month is charged as ‘Professional Tax’ on the stipend of MBBS interns in a number of government/municipal hospitals in Maharashtra. I’ll take occasion to explain a bit about professional taxes before moving further:

Wikipedia: “Professional Tax is the tax charged by the state governments in India. Any one earning an income from salary or any one practising a profession such as chartered accountant, lawyer, doctor etc are required to pay this professional tax.”

“Professional tax is levied by particular Municipal Corporations and majority of the Indian states impose this duty. It is a source of revenue for the government. The maximum amount payable per year is INR 2,500 and in line with tax payer’s salary, there are predetermined slabs.”

Firstly, it is to be remembered that the interns receive a ‘stipend’ rather than a regular salary. The definition of a stipend goes like this: “A stipend is a form of salary, such as for an internship or apprenticeship. It is often distinct from a wage or a salary because it does not necessarily represent payment for work performed; instead it represents a payment that enables somebody to be exempt partly or wholly from waged or salaried employment in order to undertake a role that is normally unpaid or voluntary, or which cannot be measured in terms of a task.”

What it basically means is that a stipend isn’t a compensation for professional service but a kind of allowance to undertake training. This way, a stipend tends more towards a ‘scholarship’ than a ‘salary’, and in accordance with Section 10(16) of the Income Tax Act, it should be exempt from taxes. There’s been a good amount of debate over this issue, and most parties have inclined towards including stipend in the ‘scholarship’ category. I present to you two legal cases to consolidate this stand (Credits: A V Vishal, LawyersClubIndia):

1) “‘A. Ratnakar Rao vs. Addl. CIT’ 128 ITR 527, the Karnataka High Court had occasion to consider whether the trainee’s stipend granted to a physician to further his education and training was exempt under Section 10(16). The Income-tax Department took the view that the amount received by the taxpayer was not in the nature of scholarship, but it was salary for the services rendered.

The High Court held that the amount paid to the taxpayer was for the benefit of securing training and pursuing study and research in medicine and the entire amount received from the hospital was in the nature of scholarship and not for services rendered and services, if any, rendered by the taxpayer were only incidental to the course of practical training.

2) An interesting question that would arise for consideration is in regard to taxability of a scholarship, where the recipient has not spent the whole amount. The Madras High Court, in the case of ‘CIT vs. V.K. Balachandran’ 147 ITR 4, had occasion to consider this very issue.

The High Court held that where the purpose of payment of scholarship is to meet the cost of education, the question whether the quantum of payment is adequate or inadequate, or, is or is not in excess of the requirement is beside the point. It is enough if the whole object is to meet the cost of education of a person and no further enquiry is called for in order to exclude the amount from the taxable income under Section 10(16).

In this case, the taxpayer, a professor of mathematics was awarded grant-in-aid by a foreign university for doing advance research in the field of mathematics. The Court held that the fact that the recipient does not spend the whole of the amount or saves something out of it or utilizes for other purposes would not detract from the character of the payment being one for scholarship and accordingly exempt from tax.”

What’s ironic is that by saddling the interns with a professional tax, the state seems to have assented to the idea that interns are real professionals, while being loath at paying them like a professional.

Regardless of the above, it has been clearly stated in the ‘Rate Schedules Under The Professional Tax Act, 1975 (Schedule 1)’ that such persons whose salaries and wages do not exceed Rs. 7500/- are exempt from any amount of professional tax. I produce a photograph of the schedule for your reference:

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Sadly, the authorities seem to have failed at keeping up not only with transparent reasoning but also with a stated and lawful directive. Quite a few medical colleges / hospitals are into this outrageous practice.

I hope this article would serve as an eye opener for my colleagues and the authorities alike, and enable the MBBS interns to take a stand against it.

Dr Soham D Bhaduri is a medical graduate and a Philosophy of Mind enthusiast, and blogs at www.freethinkingmedic.blogspot.com.

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