Intern stipend in India: tax, PF, ESI and payroll explained

An intern stipend is a fixed monthly payment to a student or recent graduate who works with a company for a limited period to learn. In India there is no national law that sets a minimum intern stipend or defines an "intern", so the tax and social security treatment depends on the actual relationship: where the intern works under the company's control like an employee, the stipend is generally taxed as salary; where there is no employer-employee relationship, it is generally treated as income from other sources. Most interns earn too little to pay any tax, but the company still needs a clear letter, attendance records and a payroll treatment it can defend.

This guide covers how interns differ from apprentices and employees, the tax, TDS, PF and ESI questions, the internship letter, attendance, certificates and conversion to a full-time role. If you hire freshers at scale, read it with our guides to campus hiring and apprentice hiring under the Apprentices Act.

Intern vs apprentice vs trainee vs employee

These categories are often mixed up, and the label in the letter does not decide the legal position; the facts do.

Category	Legal basis	Typical duration	Payment	Labour law position
Intern	Company policy and the internship letter; often part of a degree requirement	4 weeks to 6 months	Stipend, fixed by the company	No specific law; status depends on the facts
Apprentice	The Apprentices Act, 1961, with a registered contract on the government apprenticeship portal	6 months to 3 years	Stipend at or above the notified minimum	Governed by the Act; apprentices are generally excluded from the employee definitions in labour laws
Trainee or graduate trainee	Appointment letter, often with a training bond	6 to 12 months	Salary, sometimes lower during training	Employee for all purposes
Probationer	Appointment letter	3 to 6 months	Full salary	Employee for all purposes

The risk is in the first row. An "intern" who works full time for a year, does a regular job, reports to a manager and is paid monthly looks very much like an employee, whatever the letter says. Keep internships genuinely time-bound and learning-focused, or appoint the person as a trainee.

Is an intern stipend taxable?

Generally yes, but the head of income depends on the relationship.

• Where there is an employer-employee relationship (the company controls the work, hours and place, and the intern is integrated into the team), the stipend is generally taxed as salary. The employer deducts TDS on salary if the estimated taxable income for the year exceeds the limit, and the intern can claim the standard deduction.
• Where there is no employer-employee relationship (for example a research or project internship where the student works independently on an academic project), the stipend is generally income from other sources, with no standard deduction. TDS rules for payments to non-employees may then apply depending on the nature of the payment.
• Scholarships granted to meet the cost of education have their own exemption. A stipend paid mainly for the intern's work is not a scholarship just because the recipient is a student.

The tax position on stipends is not settled by a single rule, and the Income-tax Act, 2025, effective 01 Apr 2026, renumbered the relevant provisions. Decide the treatment with your tax adviser and apply it consistently.

Will TDS be deducted on a stipend?

Usually not, because the income is low. Under the new regime for tax year 2026-27, salaried individuals with taxable income up to ₹12,00,000 have no tax after the rebate, and the standard deduction is ₹75,000. A six-month intern on ₹25,000 a month earns ₹1,50,000 in total, far below any taxable level. Payroll still records the stipend and reports any TDS in the quarterly return; check our TDS on salary under the old and new regimes guide for the slabs. Collect PAN at joining all the same; without it, any TDS that does arise is at a higher rate.

Do PF and ESI apply to interns?

This is the most common question, and it needs care.

Scheme	Apprentices	Interns
PF	Apprentices engaged under the Apprentices Act (or under the standing orders of the establishment) are excluded from the PF definition of employee	No specific exclusion for "interns"; if the intern is in substance an employee, PF can apply, subject to the wage ceiling
ESI	Generally excluded where engaged under the Apprentices Act	If the intern is in substance an employee earning within the ₹21,000 gross wage limit in a covered establishment, ESI can apply

Under the Code on Social Security, 2020, the PF ceiling is ₹25,000 of wages a month from 17 Sep 2026 (₹15,000 before). Employees earning above the ceiling at joining can be excluded from compulsory PF, but most interns earn below it, so PF coverage turns on whether the intern is an employee.

In practice, many companies treat short academic internships (a few weeks to six months, linked to a course and with a learning plan) as outside PF and ESI, and treat long or full-time "internships" with regular duties as employment with PF and ESI deducted. EPFO and ESIC look at the substance of the arrangement. If your internships are long, paid and full time, take advice; the cost of contributions is small next to arrears with interest and damages. See our guides to ESI eligibility and the EPF basics.

What should an internship letter include?

1. Nature of the arrangement: an internship for learning, for a fixed period, not an offer of employment.
2. Dates: start and end dates, and any extension process.
3. Stipend: monthly amount, pay date, proration for part months, and whether it is subject to deductions.
4. College linkage: the institution, course and any credit requirement, plus the faculty guide if applicable.
5. Reporting: mentor, location, hours, and attendance and leave rules.
6. Confidentiality and IP: work product belongs to the company; confidentiality continues after the internship.
7. Conduct policies: POSH, IT acceptable use and the code of conduct apply. Interns are covered by the POSH Act's definition of employee, which includes trainees and apprentices; see our POSH compliance guide.
8. Termination: either side can end the internship with short notice (for example 7 days).
9. Certificate: issued on completion, subject to attendance and conduct.
10. Data: what personal data is collected and why. Interns are data principals under the DPDP Act, and a minor intern needs verifiable parental consent; our DPDP guide for HR covers this.

Never engage anyone under 14, and do not put interns aged 14 to 18 in hazardous work, which the child and adolescent labour law prohibits.

Attendance, leave and stipend proration

Treat attendance the same way you do for employees, so that the stipend can be prorated cleanly.

• Attendance: interns punch in like everyone else, or log daily attendance in the app.
• Leave: a simple allowance, such as 1 day a month, plus college exam days on request. Beyond that, deduct by calendar days.
• Proration: use the same divisor as your payroll (calendar days or a fixed 30) for joining and leaving months. Our guide to prorated salary explains the methods, and loss of pay covers unpaid days.

Worked example: a six-month internship

Arjun joins as an intern on 15 Jun 2026 at a stipend of ₹25,000 a month and finishes on 14 Dec 2026. The company prorates on calendar days.

Month	Days paid	Calculation	Stipend
June 2026	16 of 30	₹25,000 × 16 ÷ 30	₹13,333
July to November 2026	Full months	₹25,000 × 5	₹1,25,000
December 2026	14 of 31	₹25,000 × 14 ÷ 31	₹11,290
Total			₹1,49,623

He took 2 unapproved days off in September, beyond his allowance: ₹25,000 × 2 ÷ 30 = ₹1,667 is deducted, so September's stipend is ₹23,333 and the total falls to ₹1,47,956.

Tax: total income for the year from the stipend is under ₹1,50,000, so no TDS arises under either regime, whichever head of income applies.

If ESI applied (the internship treated as employment in a covered establishment), the full-month contribution on ₹25,000 would not arise, because ₹25,000 is above the ₹21,000 limit; an intern on ₹18,000 would contribute 0.75% (₹135) and the company 3.25% (₹585) a month. Check with our ESI calculator.

Internship certificate and conversion to full time

Certificate. Issue it within a week of completion on letterhead, stating the name, dates, department, project and a short performance remark. Many colleges have their own format; follow it.

Conversion. A pre-placement offer (PPO) should go out as a normal offer letter with the full CTC, the probation period and the joining date. Points to watch:

• Break or continuity: decide whether the internship counts towards service. Most companies do not count it for gratuity, leave or probation, but say so in the offer.
• Tax for the year: when an intern converts mid-year, the year's income includes both the stipend and the new salary. If the stipend was treated as salary, payroll should include it in the year's TDS projection.
• Onboarding: run the full employee onboarding checklist: PF and ESI declarations, nomination, UAN and bank details.

Suppose Arjun converts on 01 Jan 2027 at a CTC of ₹6,00,000. His income for tax year 2026-27 is the stipend of ₹1,47,956 plus three months of salary, about ₹1,50,000, so roughly ₹3,00,000 in total: still no tax under the new regime.

Common mistakes

• Running year-long full-time "internships" without considering PF and ESI.
• Paying stipends in cash or by personal transfer with no record.
• No written letter, so IP, confidentiality and termination are unclear.
• Forgetting interns in POSH awareness sessions.
• Skipping PAN collection because "no tax will be deducted".
• Counting internship towards service for some converted interns and not others.

FAQs

Is there a minimum stipend for interns in India? No national law sets one for interns. Apprentices engaged under the Apprentices Act must be paid at least the notified minimum stipend. Some sectors and institutions have their own guidelines.

Is intern stipend taxable in India? Generally yes. It is usually treated as salary where there is an employer-employee relationship and as income from other sources where there is not. Most interns pay no tax because their income is low.

Is PF applicable to interns? There is no specific exclusion for interns. Apprentices under the Apprentices Act are excluded, but an intern who is in substance an employee can be covered. Take advice for long or full-time internships.

Do interns get Form 16? If the stipend is treated as salary and TDS was deducted, the intern gets the annual TDS certificate (Form 130, formerly Form 16). If no TDS was deducted, many companies still give a stipend statement.

Is an intern an employee under the POSH Act? Yes. The POSH Act's definition of employee includes trainees, apprentices and similar categories, so interns are covered by the company's Internal Committee.

How NeevHR helps

NeevHR onboarding collects documents, statutory and bank details from joiners through intake forms, attendance records days and hours, and payroll applies loss of pay, PF and ESI in the monthly run. Internship letters and certificates can be kept against the record in documents. To see a joiner go from intake to first payslip, book a demo.

This article provides general information for educational purposes. Statutory rules, thresholds, rates and filing requirements may change; verify with the relevant authority or a qualified professional. Last reviewed: 27 Oct 2026.